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RAM Ratings reaffirms rating of KIP REIT Capital’s RM210 mil Class A 2019-Issue 1 MTN

Published on 01 Aug 2022.

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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. 

 

Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@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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