[RAM] RAM Ratings assigns AA2(s) and A1(s) ratings to Axis-REIT's proposed sukuk programme of up to RM3 bil

RAM Ratings has assigned respective long-term ratings of AA₂(s)/Stable and A₁(s)/Stable to the Proposed Senior Sukuk and Subordinated Perpetual Sukuk (perps), with an aggregate limit of up to RM3 bil (the Sukuk Programme), to be issued by Axis REIT Sukuk Two Berhad (the Issuer). The Issuer is the second funding conduit set up by Axis Real Estate Investment Trust (AXREIT or the REIT). 

AXREIT was the first Malaysia REIT (M-REIT) to be publicly listed in 2005. Now one of only five Islamic M-REITs in the local market, AXREIT is also the first REIT to venture into property development, successfully delivering three built-to-lease projects and two development projects to date. From an initial RM0.3 bil portfolio of five assets, it has 69 properties valued at RM5.1 bil as at 31 December 2024, spread across the office, industrial and hypermarket segments in various major states. The top three assets contributed 22.5% of asset value and 22.5% of net property income (NPI) as at the same date. AXREIT’s more granular portfolio moderates the inherent risk of industrial properties arising from single-tenanted buildings, which accounted for 74% of net lettable area (NLA). Managing a total NLA of 15.2 mil sf, it is among the top five M-REITS by market capitalisation and portfolio size. 

The suffix (s) to the issue ratings assigned indicates AXREIT’s obligation to service the Issuer’s obligations under the Sukuk Programme. The rating of the Senior Sukuk is premised on AXREIT’s credit profile, given its contractual obligation in meeting expected periodic distributions and redemption on the Senior Sukuk upon its maturity or the occurrence of a dissolution event. The perps is rated two notches below the Senior Sukuk to reflect the deferrable features of the expected periodic distributions and the securities’ deeply subordinated position, senior only to common equity. 

The REIT’s credit profile is underpinned by its diversified, high-quality industrial-focused portfolio and cash flow visibility, thanks to predominantly long-term leases that have typically kept its weighted-average lease expiry of approximately five years. The portfolio’s net yield consistently exceeds 7%, supported by high occupancy rates of 91%-97%, low- to mid-single-digit rental reversions and healthy NPI margins averaging 86% in the past five years. The eight acquisitions completed last year contributed RM726 mil in asset value and an NLA of almost 2 mil sf. Rental income recognition from new acquisitions, coupled with positive rental reversions of existing leases, is expected to bolster AXREIT’s revenue and NPI in the near to medium term. 

Fixed charge coverage is projected to remain strong at 3.40 times on average over the next three years (FY Dec 2024: 3.20 times), on the back of manageable funding costs and an anticipated increase in rental income. More than half of the REIT’s financing is fixed-rate, limiting exposure to profit rate fluctuations. As at end-December 2024, its leverage ratio and debt to operating profit before depreciation, interest and tax ratio eased to 33.29% and 7.25 times following a recent unit placement exercise which helped pare down short-term financings. The ratios are expected to stay manageable, averaging a respective 37% and 7.13 times over the next three-year period.

The REIT has successfully tapped capital markets in the past, evinced by the RM449.73 mil private placement exercise in November 2024 – its largest to date – and past sukuk issues. Of the portfolio’s 69 assets as at end-December 2024, 23 are unencumbered (38% of total asset value), providing an alternative avenue to raise financing and putting AXREIT at a distinct advantage over other M-REITs. The REIT also has multiple sustainability-linked financing facilities amounting to almost 90% of its total debt facilities, some accompanied by sustainability-linked Islamic profit rate swap agreements to manage profit rate exposure.

Proceeds from the issuance of the proposed Sukuk Programme will be utilised to, amongst others, refinance AXREIT’s Islamic financings and fund capital expenditure, asset enhancement initiatives and future acquisitions as well as working capital. The programme should help diversify the REIT’s funding profile and spread debt maturities, subject to a conducive interest rate environment.


Analytical contacts
Joel Thum
(603) 2708 8232 
joel@ram.com.my

Tan Han Nee
(603) 2708 8322 
hannee@ram.com.my

Media contact
Sakinah Arifin
(603) 2708 8212
sakinah@ram.com.my