Published on 08 Apr 2021.
RAM Ratings has reaffirmed the AAA/Stable rating of Midciti Sukuk Berhad’s RM3.0 bil Sukuk Murabahah Programme (2014/2044). As Midciti Sukuk is a financing vehicle of KLCC Real Estate Investment Trust (KLCC REIT or the REIT), the rating of the Sukuk reflects the credit profile of the REIT. KLCC REIT owns PETRONAS Twin Towers, Menara 3 PETRONAS and Menara ExxonMobil, all of which are deemed to have superior asset quality. Having no operations of its own, Midciti Sukuk depends on inter-company payments to meet its obligations.
The reaffirmation of the issue rating is premised on the REIT’s exceptional financial profile and resilient operating performance despite challenging operating conditions amid the Covid-19 pandemic. The long-term lease arrangement with Petroliam Nasional Berhad (PETRONAS), the master lessee of the triple-net lease (TNL) under this transaction, provides the REIT with long-term earnings certainty. The national oil company accounted for more than 90% of the portfolio’s net lettable area (NLA), apart from 60% of Menara ExxonMobil and retail space at Menara 3 PETRONAS. KLCC REIT’s lowly leveraged balance sheet and sturdy debt servicing coverage afford considerable room to withstand the adverse impact of the pandemic, especially on the retail side.
Notwithstanding various assistance packages granted to affected retail tenants, KLCC REIT’s total revenue declined by a marginal 1.72% y-o-y to RM581.22 mil in FY Dec 2020. Notably, the retail portion of the office-centric portfolio made up only a small part (2.93%) of the REIT’s total NLA and 5.26% of revenue for the period. Despite its worldwide cost-cutting exercise, Exxonmobil – which contributes no more than 5% of the portfolio revenue and NLA – has made no indication of early lease termination nor requested rental reduction. Owing to the TNL arrangement with PETRONAS, the REIT’s overall net property income (NPI) margin stayed robust at 95.04%. As at end-December 2020, its respective leverage and gearing ratios remained low at 0.14 times and 0.17 times, with sturdy fixed charge coverage of 7.93 times – among the highest compared to peers’.
We further expect the REIT, as part of the KLCCP Stapled Group (the Stapled Group or the Group), to maintain its close linkage to its ultimate parent, PETRONAS, based on RAM’s methodology for parent-subsidiary rating links. Units of the REIT are stapled to the shares of KLCC Property Holdings Berhad (KLCCP) by a “stapling deed”. Although having divested an 8.5% interest in KLCCP Stapled Group on 11 December 2020, PETRONAS’s overall direct and indirect stake in the latter is still significant at 66.94%. Notably, PETRONAS recently extended its TNL agreement for a further term of 15 years which will run from the expiry of the current term. Rates will be determined one year before the current lease ends and will depend on market conditions.
Irfan Afifah Mohd Zaki
(603) 3385 2551
(603) 3385 2577
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