RAM Ratings has assigned an AA2/Stable/P1 corporate credit ratings to Sunway Real Estate Investment Trust, A1(s)/Stable rating to its previously unrated RM10.0 bil Perpetual Note Programme and affirmed the P1(s) rating of its RM3.0 bil Commercial Papers (CP) Programme. The suffix (s) to the issue ratings indicate that the Issuers – SUNREIT Perpetual Bond Berhad and SUNREIT Capital Berhad – both of which are wholly owned non-operating vehicles of Sunway REIT – rely on inter-company payments from the REIT to meet their financial obligations under the respective programme.
The agency said the rating actions are premised on its view that Sunway REIT’s credit fundamentals remain supportive of its corporate credit ratings. The REIT is viewed to have a favourable market position with a prime and diversified asset and tenant mix, substantial financial flexibility, and healthy debt coverage, thanks to proactive capital management and a balanced funding mix.
The Perpetual Note Programme is rated two notches below the REIT’s long-term corporate credit rating to reflect its subordinated position and the risk of deferrable coupon payments. The issue rating of the CP Programme is reflective of the REIT’s credit profile. As at end-June 2023, securities pledged under the CP Programme and other pari passu debts sharing the same security provided collateral cover of 2.35 times over outstanding debts.
Sunway REIT’s revenue for 1H FY Dec 2023 outperformed our expectations, rising 17.0% y-o-y to RM349.33 mil as a result of high single-digit rental reversion, encouraging tenant sales at the REIT’s retail malls and a higher lease contribution from its hotels. Its net property income margin while lower due to increased electricity charges, was still a respectable 73% (FY Dec 2022: 77%). Fixed charge coverage eased to 3.07 times (FY Dec 2022: 3.73 times) owing to higher interest rates and a slightly heavier debt load. Nonetheless, we believe potential income upside from positive rental reversion, the gradual upward revision of service charges and cashflow recovery from completed asset refurbishments will help sustain the ratio at 3.20 times to 3.40 times for FY2023 and FY2024.
RAM said since its last rating announcement in June 2023, the REIT’s newer asset, Sunway REIT Industrial – Petaling Jaya 1, has secured a tenant (occupying about 22% of lettable area, effective December 2023) and is in active negotiation with two potential tenants. The REIT has also firmed up asset enhancement plans for Sunway Carnival Mall and Sunway Pyramid Mall, which will be completed within the next one to two years. The estimated cost will be staggered and funded by internal cash and borrowings. These developments, along with the REIT’s continued efforts to grow its portfolio and further diversify into less cyclical segments while expanding its geographical reach will support earnings growth and stability.
