Published on 02 Jun 2023.
RAM Ratings has affirmed the AAA/Stable rating of Midciti Sukuk Berhad’s (Midciti) RM3.0 bil Sukuk Murabahah Programme (2014/2044) in view of KLCC Real Estate Investment Trust’s (KLCC REIT or the REIT) superior financial profile and stable operating performance. Incorporated as the funding conduit of KLCC REIT with no operations of its own, Midciti depends on inter-company transactions with the REIT to meet its obligations under the Sukuk Programme.
The rating also considers KLCC REIT’s close linkage with its ultimate parent, Petroliam Nasional Berhad (PETRONAS) – the national oil company. In the unlikely event of financial distress, RAM views that KLCC REIT is highly likely to receive extraordinary support from PETRONAS. The REIT is part of the KLCCP Stapled Group in which PETRONAS has a total direct and indirect stake of 66.94%. Over 90% of the leased area and net property income (NPI) of the REIT’s portfolio are attributable to PETRONAS.
Comprising the iconic PETRONAS Twin Towers, Menara 3 PETRONAS and Menara ExxonMobil, KLCC REIT is the largest REIT in Malaysia by market capitalisation and property value. We view the quality of these assets to be exceptional, underpinned by their strategic location and long-term triple-net lease agreements signed with PETRONAS that provide the REIT with earnings certainty and a robust NPI margin of 95%. A 9% contractual rental step-up which takes effect from December 2023 and October 2024 at Menara 3 PETRONAS and PETRONAS Twin Towers, respectively, will further boost KLCC REIT’s earnings.
The REIT’s superior financial profile is evident from its low gearing and leverage ratios of 0.17 times and 0.14 times, respectively. As at end-December 2022, total financing was largely unchanged at RM1.38 bil. Thanks to stronger earnings at Menara 3 PETRONAS’s retail podium that surpassed pre-Covid 19 levels owing to higher average rental rates, KLCC REIT’s robust fixed charge coverage and funds from operations financing coverage improved further to a respective 8.52 times and 0.41 times in FY Dec 2022 (FY Dec 2021: 8.31 times and 0.38 times). These factors afford considerable rating headroom to withstand the impact of continued headwinds, especially on the retail side which contributes about 5% of the portfolio’s NPI.
Liew Kar Ling
(603) 3385 2586
Tan Han Nee
(603) 3385 2529
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Ratings on Midciti Sukuk Berhad