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Press Release
31 Jul | Tuesday
RAM Ratings reaffirms ratings of Axis REIT Sukuk’s RM155 million Second Sukuk
RAM Ratings has reaffirmed the ratings of Axis REIT Sukuk Berhad’s (ARSB) RM155 million Class A, Class B, Class C and Class D Sukuk under its Second Sukuk Issue (collectively, the Second Sukuk). The respective AAA, AA1, AA2 and AA3 ratings have a stable outlook. The Second Sukuk is secured against four office buildings – Menara Axis, Crystal Plaza, Axis Business Park (ABP) and Quattro West (QW) (collectively, the Properties).
 
The reaffirmation of the sukuk’s ratings is premised on available credit support provided by the underlying securitised assets, which remains in line with the loan-to-value (LTV) ratio and debt service coverage ratios (DSCRs) required for the respective rating categories. The ratings and stable outlook also take into consideration the notice issued by ARSB (the Issuer) to the Trustees to exercise the Expected Maturity Redemption Undertaking (EMRU) option to redeem the Class A2, B, C and D Sukuk on the Expected Maturity Date of 15 August 2018. Post-redemption, the LTV and DSCR ratio of the remaining RM70 million Class A1 Sukuk are envisaged to come in at 23.95% and 4.79 times – more than adequate to support an AAA rating even if the portfolio’s performance were to deteriorate.
 
Despite the securitised portfolio’s stable average rental rate, the Properties’ NPI in FY Dec 2017 declined 7.3% y-o-y to RM26.01 million, and continues to trend below RAM’s sustainable NPI assumption of RM28.5 million. The subdued performance was attributable to the portfolio’s lower average occupancy rate (AOR), particularly that of ABP and QW. Both properties saw their AOR reduce to a respective 63.29% and 53.99% in 2017 (2016: 67.43% and 77.53%), which resulted in NPI falling 7.10% and 39.03% y-o-y, respectively. However, we expect the portfolio’s occupancy rate to recover in fiscal 2018, given that the REIT Manager is in the midst of negotiations with prospective tenants to take up vacant space. That said, recovery may take longer than expected due to weak market sentiment.
 
The ratings are further underpinned by structural features that enhance the liquidity and security of the transactions, e.g. minimum finance service coverage ratio (FSCR) requirements at both issuer and sponsor levels. These act as trigger mechanisms to accelerate recovery via proceeds from the disposal of the underlying portfolio. We note that the respective FSCRs of the Issuer vis-a-vis the Second Sukuk and Axis REIT remained healthy at 4.05 times and 4.21 times as at end-December 2017 – above the covenanted 1.50 times.
 
ARSB is a special-purpose vehicle set up by Axis REIT as a funding conduit for its Perpetual Islamic MTN Programme of up to RM3 billion. The Second Sukuk was issued via a commercial real estate-backed transaction involving the Properties.
 
 
Analytical contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 31 July 2018
 
 
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.
 
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
 
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
 
Published by RAM Rating Services Berhad
Ó Copyright 2018 by RAM Rating Services Berhad
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