RAM Ratings has affirmed the AA2/Stable/P1 corporate credit rating (CCR) of Sunway Real Estate Investment Trust (Sunway REIT or the REIT), along with the A1(s)/Stable and P1(s) ratings of SUNREIT Perpetual Bond Berhad's and SUNREIT Capital Berhad's (collectively, the Issuers) respective RM10.0 billion Perpetual Note Programme (Perps) and RM3.0 billion Commercial Papers (CP) Programme.
The suffix (s) indicates that the issue ratings have been enhanced beyond the standalone credit position of the Issuers. The Issuers are wholly owned, non-operating subsidiaries of Sunway REIT and depend on inter-company payments from the REIT to meet their debt obligations.
The ratings affirmation is premised on the view that Sunway REIT's credit fundamentals continue to support its CCRs. The REIT's market position is considered favourable, with a prime and diversified asset and tenant mix, substantial financial flexibility and healthy debt coverage, which are underpinned by proactive capital management and a balanced funding mix.
The Perps is rated two notches below the REIT's long-term CCR to account for loss severity and the risk of deferred profit payments. The CP Programme is secured against pledged securities that provide a collateral cover of 5.19 times the REIT's outstanding pari passu debts, including the CP Programme, as at end-March 2024.
RAM said Sunway REIT's financial performance for 1Q FY Dec 2024 is on track to meet full-year expectations. While net property income (NPI) declined 6% y-o-y, primarily due to the absence of rental income from Sunway Medical Centre which was disposed of last year and the retail segment's elevated marketing expenses, the REIT's NPI margin remained healthy at 73.1% (1Q FY Dec 2023: 75.7%). The combination of a lower NPI and higher interest expense from an enlarged debt load (1Q fiscal 2024: RM3.95 bil; fiscal 2023: 3.72 bil) resulted in narrower fixed charge coverage of 2.80 times (fiscal 2023: 3.04 times).
Nevertheless, the ratings agency said it expects the ratio to stay above 3.0 times over the next two years, driven by potential income upside from rental contributions of the REIT's newly acquired hypermarkets and proposed acquisitions including 163 Retail Park and Prai industrial asset. Additionally, positive rental reversion, a gradual increase in service and promotional charges, and cashflow recovery following the completion of asset refurbishments of Sunway Pyramid Oasis section and Sunway Carnival Mall are anticipated to further solidify the outlook.