Published on 20 Sep 2023.
RAM Ratings has affirmed the AAA/Stable issue rating of IGB REIT Capital Sdn Bhd’s (the Issuer) RM1.2 bil Second Tranche MTN. This is the second issuance under the Issuer’s RM5.0 bil MTN Programme, secured against Mid Valley Megamall (the Mall or the Property). IGB REIT Capital is a special-purpose vehicle incorporated by IGB Real Estate Investment Trust (the REIT) to facilitate the fundraising exercise.
The affirmation of the rating is premised on the transaction’s strong collateral support and our view that the Mall’s performance will continue to fall largely within our expectations. Excluding a one-off reversal of impairment of trade receivables, Mid Valley Megamall’s net property income surged 48.3% y-o-y to RM297 mil in FY Dec 2022, comfortably meeting our sustainable cashflow assumption of RM290 mil. The resultant adjusted valuation of RM3.6 bil for the Mall provides strong credit support for the Second Tranche MTN, as reflected by the loan-to-value and stressed debt service coverage ratios of 33.1% and 2.84 times, respectively.
This robust performance was mainly due to strong growth in base and variable rent, given the rebound in consumer spending as Covid-19 rules were relaxed further and office workers and international travellers gradually returned. Car park income also jumped 57.8% y-o-y to RM25 mil, largely a result of higher footfall and increased parking rates effective October 2022. Partially moderating the solid growth were higher operating expenses which rose 29.9% y-o-y, primarily driven by greater energy usage following higher footfall as well as an Imbalance Cost-Pass Through surcharge of 3.7 sen/kWh on electricity bills for fiscal 2022.
In 1H fiscal 2023, the Mall recorded a NPI of RM160 mil, on track to another favourable performance for the full year. While downside risks such as new competition, slower retail spending and inflationary pressures may weigh on the sector, Mid Valley Megamall is poised to continue its sturdy showing in the second half of the year in view of its resilient track record of near full occupancy and strong footfall since inception. Ongoing space reconfiguration and tenant reshuffling have had minimal impact on the Mall’s performance.
The rating is also underpinned by the transaction’s structural features and financial covenants that would initiate the disposal of the Mall upon the occurrence of a trigger event while ongoing coupon obligations on the Second Tranche MTN are met. This includes performance triggers at both the REIT and the Mall levels as well as the failure to redeem the Second Tranche MTN at expected maturity, among other events. We believe the Mall’s cashflow performance and the transaction’s prefunded cash reserve provide adequate buffers to facilitate an orderly disposal of the Property to meet redemption of the MTN by the legal maturity date.
Sean Lim, CFA
(603) 3385 2550
Lim Chern Yit
(603) 3385 2528
(603) 3385 2500
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
Ratings on IGB REIT Capital Sdn Bhd