[RAM] RAM Ratings assigns preliminary ratings to Sunway REIT's MTN Programme under SUNREIT Bond Berhad

RAM Ratings has assigned preliminary ratings of AA1(s)/Stable and AA2(s)/Stable to respective secured and unsecured medium-term notes (MTNs) under SUNREIT Bond Berhad’s (the Issuer, formerly SUNREIT Unrated Bond Berhad) previously unrated RM10.0 bil MTN Programme (2012/2047). The suffix (s) to the issue ratings indicates that the Issuer, a wholly owned non-operating vehicle of Sunway Real Estate Investment Trust (Sunway REIT or the REIT), relies on inter-company payments from the REIT to meet its financial obligations in respect of the MTN Programme. 

The secured MTNs are rated one notch above Sunway REIT’s long-term corporate credit rating (CCR) based on RAM’s rating methodology for well-secured debt, reflecting the strong likelihood of recovery in the event of default, through liquidation of the properties secured against the MTN. The existing and future secured MTNs are subject to loan-to-value covenants of up to 50% and 60%, respectively, under the programme terms, which will provide a minimum security cover of at least 1.67 times. The issue rating of the unsecured MTNs is equated to the REIT’s AA2 long-term CCR. 

Sunway REIT’s CCR is premised on its 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.

Sunway REIT’s financial performance for FY Dec 2023 surpassed our expectations. Revenue jumped 10% y-o-y to RM715.69 mil as a result of strong single-digit rental reversion, encouraging retail tenant sales and a higher lease contribution from its hotels. The REIT’s net property income (NPI) margin, although constrained by higher electricity charges, remained respectable at 74% (FY Dec 2022: 77%). Fixed charge coverage eased to 3.04 times (FY Dec 2022: 3.73 times) owing to higher interest rates and a heavier debt load. Nonetheless, we believe potential income upside from positive rental reversion, the upward revision of service charges and cashflow recovery from completed asset enhancement initiatives will sustain the ratio at around 3.40 times for fiscal 2024. 

Since our last rating announcement in November 2023, a newly secured tenant for Sunway REIT Industrial – Petaling Jaya 1 will bring its occupancy rate close to 40% in the second half of this year. As at end-December 2023, the REIT has also secured committed leases for a respective 62% (at higher rental rates) and 75% of space under reconfiguration at Sunway Pyramid Mall and the existing wing of Sunway Carnival Mall. The proposed acquisitions of 163 Retail Park in Mont Kiara and an industrial asset in Prai, Penang, with respective expected NPI yields of 6.5% and 7.0%, are slated to enhance Sunway REIT’s current portfolio yield of 5.7% when they are completed in 2024. These developments bode well in supporting the REIT’s future growth and income diversification.

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Tan Han Nee
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