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RAM Ratings assigns preliminary AAA(fg)/Stable rating to proposed RM230 mil Guaranteed Tranche(s) of Hektar REIT
Published on 27 Dec 2023.
RAM Ratings has assigned a preliminary rating of AAA(fg)/Stable to the proposed up to RM230 million Medium Term Notes (Guaranteed Tranche(s)) to be issued under Hektar MTN Satu Sdn Bhd’s (Hektar Satu or the Issuer) proposed RM500 million MTN programme. The preliminary enhanced rating for the proposed Guaranteed Tranche(s) reflects the irrevocable and unconditional guarantee provided by Credit Guarantee and Investment Facility (rated AAA/Stable/P1 by RAM Ratings).
Hektar Satu is a wholly owned subsidiary of Hektar REIT (the REIT), set up solely as a funding conduit for the MTN Programme. Hektar REIT was the first retail-focused real estate investment trust to be publicly listed in 2006. The REIT currently owns and manages six neighbourhood retail assets across peninsular Malaysia, namely Subang Parade, Mahkota Parade, Wetex Parade, Central Square, Kulim Central and Segamat Sentral, as well as a 156-room hotel annexed to Wetex Parade. Valued at RM1.21 bil as at end-December 2022, the asset portfolio is set to increase to RM1.36 bil after the completion of the acquisition of education asset Kolej Yayasan Saad (residential private school) in Melaka by 1H 2024, in line with the REIT’s strategy to diversify amid the competitive retail industry.
Excluding the guarantee, Hektar REIT’s credit profile reflects the geographic diversity of its mall assets and the anticipated gradual recovery of its rental revenue over the near to medium term. The REIT’s leverage ratio and debt-to-operating profit before depreciation, interest and tax (OPBDIT) ratio are expected to improve to 43% and 9.0 times, respectively, by FY Dec 2024. Fixed charge coverage is projected to average higher at 2.51 times over the next three years. Hektar REIT enjoys moderate financial flexibility in managing its working capital needs.
Proceeds from the proposed Guaranteed Tranche(s) will be utilised to refinance some of the REIT’s existing borrowings and fund capital expenditure and asset enhancement initiatives for existing assets. This issuance would help diversify Hektar REIT’s funding profile beyond floating rate loans, providing some hedge against increases in interest rates.
We expect to assign the final rating and publish the rating rationale within the next month. This will be subject to our satisfactory review of relevant transaction documentation, including the approval and terms of the financial guarantee.
Analytical contacts
Joel Thum
(603) 3385 2517
joel@ram.com.my
Tan Han Nee
(603) 3385 2529
hannee@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
