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RAM Ratings reaffirms AAA rating of Suria KLCC’s MTN Programme

Published on 13 Jan 2022.

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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 (MTN) 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 reflects our expectation that the Company’s conservative financial profile will continue to provide significant buffers notwithstanding the lower earnings as a result of the Covid-19 impact, considering its lowly leveraged balance sheet. As at end-September 2021, Suria KLCC’s gearing and debt to assets ratios stayed low, unchanged at 0.12 times and 0.11 times, respectively. Interest coverage and funds from operating (FFO) debt coverage were still strong although lower at a respective 7.12 times and 0.26 times (FY Dec 2020: 9.65 times and 0.39 times). While the Company has a lumpy debt which will become due in 2024, we believe it will have minimal issue refinancing it, given the prime quality of the Mall and its low asset leverage.

Amid prolonged and stricter movement curbs in 2021, the Company extended further rental assistance to the Mall’s tenants, either in the form of deferments or rebates. For FY Dec 2020 and 9M FY Dec 2021, Suria KLCC Mall’s average rental rate (ARR) was stable at RM36 psf (FY Dec 2019: RM35 psf). Average occupancy rate (AOR) however eased further to 91% in 9M FY Dec 2021 (2020: 95%; 2019: 97%). The rental assistance, lower AOR and mild negative average rental reversion rate caused revenue to decline 24% y-o-y to RM222 mil in 9M FY Dec 2021, and operating profit before depreciation, interest and tax (OPBDIT) margin narrowed to 75.2% (9M FY Dec 2020: 81.6%). That said, the Mall’s ARR and OPBDIT margin stayed superior to its peers. 

As at end-September 2021, the Mall’s lease renewal rate was decent at close to 80% of matured leases. The rest are being negotiated. Leases maturing in 2022 is lumpy at 53.4% of net lettable area (NLA) as at end-September 2021. Of this, about 62% stemmed from two major tenants whom we expect to stay.  Suria KLCC’s receivable ageing profile as at end-September 2021 is still manageable as rentals that are more than one month past due constituted 13.4% of overall base rental revenue.

As consumer’s confidence about returning to large malls have yet to fully recover and international travel ban has not been entirely lifted, we expect the Mall’s earnings to remain muted in 2022 before a more meaningful recovery in 2023. Nonetheless, the Company’s low exposure to variable rental income (0.6% of total revenue in 9M FY Dec 2021) affords it better earnings visibility.

The rating also reflects our view that Suria KLCC is highly likely to receive support, when required, from its indirect shareholder, KLCC (Holdings) Sdn Bhd (KLCCH), and ultimate shareholder, Petroliam Nasional Berhad (PETRONAS). PETRONAS has a direct 2.3% interest in KLCC Property Holdings Berhad (KLCCP), along with another 64.7% indirectly held 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 development is closely associated with PETRONAS, the major lessee of the iconic PETRONAS Twin Towers, who has exercised its option in 2020 to extend the lease term for a further 15 years, well ahead of expiry in 2027. The Company accounts for about a third of the revenue and assets of its immediate major shareholder, KLCCP.

 

Analytical contacts
Kaylee Chiah
(603) 3385 2515
kaylee@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 2022 by RAM Rating Services Berhad



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