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RAM Ratings reaffirms ratings of Axis REIT Sukuk Berhad’s RM110 mil First Sukuk

Published on 23 Sep 2021.

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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.

 

Analytical contacts
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Tan Han Nee
(603) 3385 2529
hannee@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2021 by RAM Rating Services Berhad



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