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RAM Ratings affirms P1(s) rating of debt facility issued by Sunway REIT’s financing conduit
Published on 19 Jun 2023.
RAM Ratings has affirmed the P1(s) rating of SUNREIT Capital Berhad’s (the Issuer) RM3.0 bil Commercial Papers (CP) Programme. The Issuer is a wholly-owned non-operating vehicle of Sunway Real Estate Investment Trust (Sunway REIT or the REIT) and relies on inter-company payments from the REIT to meet its obligations under the CP Programme.
The affirmed rating continues to reflect Sunway REIT’s credit profile and the collateral properties pledged to the CP Programme (Secured Properties). The suffix (s) to the issue rating incorporates the strong likelihood of recovery in the event of default through the liquidation of the Secured Properties. As at end-December 2022, the Secured Properties valued at RM7.68 bil provided a collateral cover of 2.38 times over outstanding debts which rank pari passu with the CP Programme, markedly above the 1.67 times required under RAM’s rating methodology for well-secured debt. Loan to value is also below the covenanted maximum 0.50 times under the CP Programme.
Driven by better performances across all segments particularly retail malls and hotels, the REIT’s revenue rebounded to pre-pandemic levels, up 38% and 16% y-o-y at RM651.45 mil and RM182.80 mil, respectively, in FY Dec 2022 and 1Q FY Dec 2023. Net property income margins also widened to 77% and 76%, respectively, from 69% in 2021. Coupled with the REIT’s constant efforts to enhance its properties, the retail and office segments recorded strong renewal rates of 98% and 93%, respectively, in 2022, with positive rental reversion of 4%.
Sunway REIT’s strong financial flexibility – as seen in its diversified sources of debt funding, strong underwriting and subscription commitments from financiers, and a proven ability to access capital markets – mitigates refinancing risk arising from the 44% share of short-term borrowings in its debt mix. Despite new acquisitions and higher overnight policy rates, the REIT’s fixed charge coverage improved to 3.99 times while adjusted leverage rose only slightly to 0.40 times as at end-March 2023 (2021: 2.56 times and 0.38 times), thanks to the management’s proactive capital management strategy to keep financing cost low while maintaining a balanced debt profile.
Analytical contacts
Liew Kar Ling
(603) 3385 2586
karling@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 2023 by RAM Rating Services Berhad
