RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Midciti Sukuk Berhad's (Midciti) Sukuk Murabahah Programme of up to RM3.0 billion Nominal Value (2014/2044). As Midciti Sukuk is a special-purpose financing vehicle for KLCC Real Estate Investment Trust (KLCC REIT or the REIT), the ratings of the Sukuk Murabahah reflect the credit profile of KLCC REIT.
Based on RAM's methodology on parent-subsidiary rating links, we have established the relationship between Petroliam Nasional Berhad (PETRONAS) as "close" given the strong parental support from PETRONAS and its representation on KLCC Stapled Group's (Stapled Group or Group) board of directors. Furthermore, PETRONAS is also the head lessee for most of the REIT's assets, with long-term, triple-net lease agreements. The longer-than-industry-average 15-year head leases for both the Petronas Twin Towers and Menara 3 Petronas help mitigate any volatility within the industry and also ensure the predictability of the REIT's cashflow through the triple-net lease arrangements.
During the reviewed period, KLCC REIT maintained its leverage ratio at a healthy 0.17 times. Underscored by a net property income (NPI) margin that has consistently stayed above 95% and more than RM400 million of annual cashflow in the last 2 years, coupled with RM4.25 million of expected capital expenditure for the refurbishment of Menara ExxonMobil in FY Dec 2016, the REIT's fixed charge coverage still came up to a robust 5.18 times as at end-FY Dec 2014; the ratio is expected to increase beyond 7 times in the near term. Meanwhile, the REIT's funds from operations financing coverage ratio stood at 0.30 times, i.e. above the peer average.
The ratings also reflect the high-quality assets of the REIT. The assets of KLCC REIT are situated in the prime KLCC development area, connected by major road networks and public transportation systems, thus providing an added advantage over other comparable properties. This enables the REIT to command rental rates that are higher than those of the other offices of similar grade in the vicinity. The REIT also benefits from a strong, visible pipeline of assets from KLCC (Holdings) Sdn Bhd (KLCCH) and KLCC Property Holdings Berhad (KLCCP). KLCCP owns a stable of 4 matured assets while KLCCH is the master developer of the KLCC area. The latter has just formed 2 major joint ventures to develop a mixed project and an office building.
As part of the Group's expansion plan, it has already secured the unitholders' approval for a 1-year extension on its mandate to undertake a rights placement for up to RM1.2 billion. The proceeds have been earmarked for future investments. The new units will only be issued once the Group has identified the assets to be acquired. "Going forward, the REIT is expected to maintain its stable showing, supported by the steady performance of its office properties and backed by long-term lease agreements," observes Siew Suet Ming, RAM's Head of Structured Finance Ratings.
KLCC REIT's units are stapled together with KLCCP's shares by a stapling deed, forming the Stapled Group, which is 75.5%-owned by PETRONAS. This enables the Group to benefit from the tax profile of a REIT structure through relevant tax exemptions and allows the unitholders access to stable REIT distributions as well as capital growth while benefiting from the development potential of the assets and the Group's organic growth.
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Irene Wong
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irene@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.
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© Press Release 2015
