Published on 08 Jan 2021.
RAM Ratings has reaffirmed the AAA/Stable rating of Suria KLCC Sdn Bhd’s (Suria KLCC or the Company) RM600 mil Islamic Medium-term Notes Programme (2014/2044). Suria KLCC is the owner and property manager of the iconic Suria KLCC Mall (the Mall), located within the prime Kuala Lumpur City Centre (KLCC) development.
The reaffirmation of the rating is premised on our view that Suria KLCC’s conservative financial profile provides significant headroom for a decline in earnings as a result of the Covid-19 pandemic. This is afforded by the Company’s low leveraged balance sheet, robust debt protection metrics and the fact that none of its debts mature before 2024. Suria KLCC’s gearing stood at 0.12 times as at end-September 2020 while its interest coverage and funds from operations debt coverage ratios stayed robust at 10.01 times and 0.47 times, respectively (FY Dec 2019: 12.99 times and 0.52 times).
Suria KLCC’s revenue fell 18.8% (annualised) y-o-y to RM292.88 mil for 9M FY Dec 2020 (FY Dec 2019: +1.8%; RM480.83 mil) due to negative rental reversion and rental relief extended by the Company to tenants of the Mall. The reduction in top line was not as severe as levels observed for some rated malls, thanks to higher rental income from the Mall’s newly reconfigured multi-tenanted space previously occupied by an anchor tenant. Underpinned by various cost containment measures and an electricity subsidy, the Company’s OPBDIT margin narrowed slightly to 81.57% in 9M FY Dec 2020 (FY Dec 2019: 83.51%), albeit remaining high.
We expect Suria KLCC’s earnings to stay subdued for the next one to two years, given still-evolving conditions amid the pandemic. However, the Company will not be as affected as some other malls as the amount of variable rental income and non-rental income that it earns is less material and the level of leases maturing in the near term is manageable.
The rating also reflects our view that Suria KLCC is highly likely to receive parental support, when required, from its indirect shareholder, KLCC (Holdings) Sdn Bhd (KLCCH), and ultimate shareholder, Petroliam Nasional Berhad (PETRONAS). Notwithstanding that PETRONAS divested a 8.5% interest in KLCC Stapled Group on 11 December 2020, its overall direct and indirect stake in the latter is still significant at 66.94%. PETRONAS holds a direct 2.3% interest in KLCC Property Holdings Berhad (KLCCP), along with another 64.7% indirectly through wholly owned KLCCH. Suria KLCC is 60%-owned by KLCCP while the remaining 40% is held by CBRE Global Investors, a subsidiary of CBRE Group, Inc.
The relationship between Suria KLCC and its indirect shareholders (as defined in RAM’s Criteria on Parent-Subsidiary Rating Links) is deemed close as the Mall is a core component of the KLCC development – a prime real estate investment of KLCCH. The project is closely associated with PETRONAS, the major lessee of the iconic PETRONAS Twin Towers, who has exercised its option to extend the lease term for a further period of 15 years well ahead of expiry in 2027. In addition, the Company accounts for about a third of the revenue and assets of its immediate major shareholder, KLCCP.
Irfan Afifah Mohd Zaki
(603) 3385 2551
(603) 3385 2577
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Ratings on Suria KLCC Sdn Bhd