Published on 23 Sep 2021.
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 (the Issuer) First Sukuk Issue (2012/2024). All ratings carry a stable outlook.
Sponsored by Axis Real Estate Investment Trust (Axis-REIT), the transaction is backed by four assets. Axis Northport Distribution Centre 1 and Bukit Raja Distribution Centre are industrial properties, Axis Vista is a mixed-use office and industrial property, and Axis Hypermarket @ Johor (formerly known as Tesco Bukit Indah) is a retail asset. The four assets are collectively referred to as the Secured Properties.
Our rating action reflects the strong credit attributes and lease profile of the portfolio, which will continue to anchor the transaction’s cash generating ability and marketability. The portfolio’s net property income (NPI) for 2020 stayed above our sustainable cash flow assumption of RM20 mil per annum, albeit down slightly at RM20.4 mil (2019: RM21.1 mil) due to one-off repair costs incurred for one of the Secured Properties. As the majority of the portfolio’s tenants are in essential services sectors (i.e. logistics and warehousing as well as hypermarkets), they have continued to operate with little interruption. These tenants contribute close to 90% of the transaction’s revenue in aggregate.
The Secured Properties’ longer weighted-average remaining lease period of 12.2 years as at end-June 2021 further provides the transaction with good cashflow visibility and certainty. All leases that expired in the 2020-2021 period were renewed at the same or higher rental rates. We expect NPI to remain stable in the near term despite the highly challenging operating environment, as most of the Secured Properties’ tenants continue to operate during the current lockdown.
Our adjusted portfolio valuation stayed unchanged at RM217.3 mil (40% lower than latest market value of RM363.0 mil). As such, 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 robust finance service coverage ratio (FSCR) provides some buffer against unexpected disruptions to the portfolio’s cashflow generation (end-June 2021: 4.18 times; end-December 2019: 4.16 times). Axis-REIT’s FSCR also stayed sturdy at 3.48 times as at end-June 2021 (end-December 2019: 3.65 times). Both indicators were well above the covenanted 1.5 times.
We continue to derive comfort from the portfolio’s tenant profile which boasts established multinational or logistics companies with long and established operating histories in Malaysia. This moderates sector and tenant concentration risks inherent to the transaction as three of the four properties are industrial properties and/or single-tenanted.
Loh Kit Yoong
(603) 3385 2493
Tan Han Nee
(603) 3385 2529
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Published by RAM Rating Services Berhad
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Ratings on Axis REIT Sukuk Berhad (First Sukuk)