Published on 11 Aug 2022.
RAM Ratings has assigned a preliminary rating of AAA/Stable to the proposed RM1.20 bil second issuance (Second Tranche MTN) under IGB REIT Capital Sdn Bhd’s (the Issuer) RM5.0 bil MTN Programme (the Programme).
IGB REIT Capital, a wholly owned subsidiary of IGB Real Estate Investment Trust (IGB REIT), is a special-purpose vehicle incorporated to facilitate the fundraising exercise under the Programme. The Second Tranche MTN will be secured against Mid Valley Megamall (the Mall or the Property), with issuance proceeds used to redeem the outstanding RM1.20 bil First Tranche MTN on the expected maturity date of 20 September 2022. Located in Mid Valley City, the Mall is a five-level retail property with one mezzanine floor, two basement and four elevated car park levels. As at end-June 2022, its market value stood at RM3.67 bil.
RAM views the overall quality of the Mall as exceptional, with a RAM Property Score of R-4.65 (out of a maximum of R-5.00). Based on RAM’s adjusted valuation of RM[3.63] bil for the Mall, the resultant loan to value ratio of [33.1]% and stressed debt service coverage ratio of [2.84] times indicate strong credit support for the Second Tranche MTN.
Following the progressive resumption of economic activities since the fourth quarter of last year, the Mall’s revenue and net property income (NPI) jumped 44.1% y-o-y and 67.5% y-o-y to RM186.72 mil and RM151.06 mil, respectively in 1H FY 2022. The Mall’s NPI margin improved to 80.9% (1H FY 2021: 69.6%). The Property’s annualised performance is on track to exceed pre-pandemic levels, although we remain cautious of the large retail space supply-demand gap as well as the risk of a global recession, among other near-term challenges.
As at end-June 2022, the Mall’s lease maturity profile was manageable with leases for a respective 14.4%, 39.9%, 35.6% and 8.7% of net lettable area due to expire in 2022, 2023, 2024 and 2025. Its weighted average lease expiry of 1.53 years as at the same date was down from 2.0 years previously but remained better than peers’. About 90% of leases expiring in 2022 have been renewed.
The preliminary rating also considers the transaction’s structural features and financial covenants to initiate the disposal of the Property upon the occurrence of a trigger event. These include performance triggers at both the issuer and REIT levels to pre-empt the risk of a decline in credit support due to sustained deterioration in NPI and material devaluation of the Mall. In view of current weaker property market conditions, the Second Tranche MTN incorporates a slightly longer tail period of 2.5 years to allow for the disposal of the Mall.
Liew Kar Ling
(603) 3385 2586
Lim Chern Yit
(603) 3385 2528
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.
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Ratings on IGB REIT Capital Sdn Bhd