Published on 09 Sep 2020.
RAM Ratings has reaffirmed the respective AAA, AA1, AA2 and AA3 ratings of the RM110 mil of Class A, Class B, Class C and Class D sukuk under Axis REIT Sukuk Berhad’s (ARSB or the Issuer) First Sukuk Issue (2012/2024). All ratings carry a stable outlook. The transaction is backed by four properties comprising three industrial and industrial-office mixed properties as well as a retail property, i.e. Axis Northport Distribution Centre 1 (formerly Axis Steel Centre), Bukit Raja Distribution Centre, Axis Vista and Tesco Bukit Indah (collectively referred to as the Secured Properties).
The reaffirmation of the ratings is premised on our view that the portfolio’s strong credit attributes and performance will continue to anchor its cash-generating ability and marketability. The Secured Properties’ weighted-average remaining lease period of 13.2 years as at end-June 2020 is longer than standard lease terms, providing the transaction with cashflow visibility and certainty. As our adjusted portfolio valuation stayed unchanged at RM217.3 mil (relative to latest market value of RM349.6 mil), the resultant cumulative loan-to-value ratios of 43.7%, 46.0%, 48.3% and 50.6% and debt service coverage ratios of 2.5 times, 2.4 times, 2.2 times and 2.1 times remain commensurate with the respective ratings of the Class A to Class D sukuk.
The portfolio’s net property income (NPI) stayed above our sustainable cash flow assumption of RM20 mil per annum, having clocked in at RM21.1 mil in 2019 (2018: RM21.0 mil). Taking into account projected capital expenditure that will be entirely funded by rental income, the NPI should still come in above our sustainable assumption this year. While the economic crisis at hand poses downside risks to the portfolio’s top line, the Secured Properties’ tenants have honoured their rental obligations to date. As the majority of the underlying tenants operate in essential services sectors, i.e. logistics and warehousing as well as hypermarkets, they have been less affected by Covid-19-induced pre-emptive measures.
Given the still-fluid situation, it remains to be seen if the capacity of tenants to meet rental payments will weaken in the long run. The Issuer’s robust finance service coverage ratio (FSCR) for the First Sukuk Issue provides some buffer to this end – the ratio was 4.16 times as at end-December 2019 (end-December 2018: 4.08 times). Likewise, Axis Real Estate Investment Trust’s FSCR was sturdy at 3.65 times as at the same date (end-December 2018: 3.48 times). Both indicators were well above the covenanted 1.5 times. We continue to derive some comfort from the tenants’ reputation as established multinational or logistics companies, which moderates sector and tenant concentration risks inherent to the transaction as three of the four properties are industrial properties and/or are single-tenanted.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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Ratings on Axis REIT Sukuk Berhad (First Sukuk)