Published on 01 Aug 2022.
RAM Ratings has reaffirmed the AAA/Stable rating of the RM210 mil Class A 2019-Issue 1 Medium Term Notes (Class A Notes) under KIP REIT Capital Sdn Bhd’s (the Issuer) RM2.0 bil perpetual MTN Programme (the Programme).
The 2019-Issue 1 MTN is the first issuance under the Programme, backed by KIPMall Tampoi, KIPMall Masai and KIPMall Bangi (KMB) (the KIPMalls) and AEON Mall Kinta City (AMKC) (collectively, the Properties). The Properties’ combined market value improved by 5.9% y-o-y to RM719.0 mil as at 30 June 2022.
The rating action reflects the Properties’ strong credit attributes and resilient performance, and the transaction’s structure and sturdy liquidity position. For 9M FY Jun 2022, the Properties’ annualised net operating cashflow (NCF) – although declining 5% y-o-y to RM47.90 mil due to increased rental assistance amid stricter mobility curbs in 3Q 2021 – outperformed our stress assumption by 9%, partly because of lower property expenses. The Properties’ full-year performance for FY Jun 2022 should come in stronger with the entry of new anchor tenants and positive rental reversion on renewed leases. The Properties’ assessed cash flow of RM50 mil and valuation of RM570.82 mil provide holders of the Class A Notes comfortable credit support relative to the rating, as seen in its loan to value ratio of 36.79% and stressed debt service coverage of 2.82 times.
The relatively large proportion of tenants in the fresh market and supermarket segments allow the Properties to better withstand Covid-19-related disruptions and current inflationary pressure compared to lifestyle malls. Its weighted average lease expiry of 3.09 years (by rental income) as at 30 April 2022 – largely owing to the long-term lease arrangement with reputable tenants such as AEON Co (M) Bhd and minimal exposure to variable rents provide good cashflow certainty. On average, the KIPMalls’ receivable cycle stood stable at around two weeks.
Downside risk could arise from KMB’s ongoing major rejuvenation project, as targeted completion has been delayed by almost nine months to late 2023. We expect an earnings blip for KMB due to the delay and rental yield accretion will likely be gradual post-completion. While we maintain our favourable view on the asset enhancement initiatives, we may reassess the Properties’ sustainable cashflow assumptions if KMB significantly underperform against our expectations.
A wholly owned subsidiary of KIP Real Estate Investment Trust (KIP REIT), KIP REIT Capital was set up solely as a funding conduit for the Programme, to be secured against properties owned by KIP REIT. Listed in February 2017 as a retail REIT, KIP REIT in September 2020 expanded its portfolio to include commercial and industrial assets for better asset diversification.
Chu Jia Ying
(603) 3385 2519
Tan Han Nee
(603) 3385 2529
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Published by RAM Rating Services Berhad
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Ratings on KIP REIT Capital Sdn Bhd (Issue 1)