RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Suria KLCC Sdn Bhd's (the Company) Sukuk Murabahah Programmes (the Programmes) of up to RM600 million. Suria KLCC is the owner and manager of the 6-storey Suria KLCC shopping mall (the Mall), located within the Kuala Lumpur City Centre (KLCC) development.
The reaffirmation is premised on the Company's resilient earnings and financial metrics that remain within our expectations despite lacklustre retail sentiment, driven by the Mall's superior asset quality and the management's prudent capital management. In 9M fiscal 2015, Suria KLCC maintained its high average occupancy rate of 99.1% and commendable average reversion rate of 12.0% on renewed leases, which allowed it to command a net property margin of 85.3% and an implied NPI yield of 7.62% - higher than those of its closest peers. We also note that the Company managed to renew the bulk of its expiring leases in 2015, and has maintained a well-staggered lease-maturity profile, with a respective 17.9%, 19.3% and 22.5% of its NLA expiring each year between 2016 and 2018.
On the other hand, the Company's ratings are constrained by high degrees of asset- and geographical-concentration risks. Amid subdued consumer sentiment due to the rising cost of living and the weak ringgit, as well as a substantial incoming supply of retail space, we expect heightening competition to affect the ability of new and less prominent malls to raise their rental rates and maintain their margins. We note that Suria KLCC has introduced more new tenants in line with its tenants reconfiguration and enhancement exercise, resulting in higher contribution of rent-free, which in turn diluted the y-o-y growth in its overall base rental rate to 2.8% (annualised) in 9M fiscal 2015 (fiscal 2014: +8.0%). That said, we expect the Mall's prime position and high proportion of fixed rental in its overall lease structure to sustain its earnings, although the tenants' ability to stomach high reversion may be tested by its premium rental rates.
Meanwhile, Suria KLCC has remained lowly leveraged, with gross gearing and debt-to-asset ratios of less than 0.2 times as at end-September 2015. Its debt-servicing ability stayed robust, with a funds from operations (FFO) debt cover of 0.48 times and a fixed charge cover of more than 10 times in 9M fiscal 2015. The Company's fixed charge cover compares favourably to those of its closest peers, such as Pavilion REIT and IGB REIT at 8.21 times and 5.21 times, respectively, in fiscal 2014, and is deemed more-than-sufficient to meet its dividend maximisation policy. Its liquidity position and financial flexibility have strengthened significantly after the refinancing of all its debts (in 2014) via the issuance of the IMTN under its Sukuk Programmes - repayable only in fiscal 2024 and totally unsecured.
The ratings have benefited from an uplift, premised on our view of a high likelihood of parental support from its indirect shareholder, KLCC (Holdings) Sdn Bhd (KLCCH or the Group) and ultimate shareholder, Petrolium Nasional Berhad (PETRONAS), notwithstanding CBRE Global Investors' - a subsidiary of CBRE Group, Inc - 40% stake in the Company. Suria KLCC is 60%-owned by KLCC Property Holdings Berhad (KLCCP), in which PETRONAS has a direct and indirect stake of 75.5%. PETRONAS owns a direct 10.8% stake in KLCCP and holds another 64.7% indirectly through wholly owned KLCCH. The relationship (as defined in RAM's Criteria on Parent-Subsidiary Rating Links) between Suria KLCC and its indirect shareholders is deemed close given that the Mall is a core component within the entire KLCC development - a prime real-estate investment by KLCCH and a project closely associated with Petronas, the 15-year major lessee of the Petronas Twin Towers. The Company also accounts for about a third of the revenue and assets of its immediate major shareholder, KLCCP.
Media contact
Tan Han Nee
(603) 7628 1023
hannee@ram.com.my
© Press Release 2015