Tuesday, 14 November 2017

RAM Ratings analyses risks for sukuk ijarah at Ampang Point Shopping Centre

RAM Ratings has reaffirmed the ratings of Purple Boulevard’s RM250 million sukuk under its RM450 million asset-backed Sukuk Ijarah Programme. The issuer is a special-purpose vehicle sponsored by Nadin Holdings and Nadin Management to undertake the securitisation of Ampang Point Shopping Centre in Malaysia.

There are five classes of sukuk under the programme with different ratings and expected maturity dates, with the earliest being 13 November 2020.

RAM Ratings says the reaffirmation of the ratings of the Class A, Class B and Class C Sukuk Ijarah - AAA/Stable, AA3/Stable and A3/Stable respectively - is premised on our expectation that Ampang Point’s performance will remain supportive of our assumed annual sustainable net property income (NPI) and also the assessed capital value of RM221.1 million. The reaffirmation of the Class D Sukuk Ijarah rating (AAA[fg]/Stable) reflects the credit standing of its guarantor, Danajamin Nasional, the rating of which was reaffirmed at AAA/Stable on 23 August 2017, RAM Ratings added.

In fiscal 2016, Ampang Point recorded positive rental reversion as a result of the commencement of leases and revised rental rates of a related-party tenant, RAM Ratings observes. However, the property’s average rental rate (ARR) fell in the first seven months of FY17, mainly because some tenancy agreements were renewed at lower rental rates during the period. This downside risk is mitigated however by the turnover rent component. Correspondingly, NPI fell 1.9% to RM22.85 million (annualised), from RM23.29 million in fiscal 2016 – above the assumed annual sustainable NPI of RM20.00 million. Despite this, Ampang Point’s average occupancy rate (AOR) remained stable at 95%-96%. 

"We note that rental reduction is part of the management’s tenant-retention strategy amid the challenging business environment. As such, we envisage its top-line growth to be constrained in the near to medium term, along with some margin compression," RAM Ratings said. 

The consultancy also noted that Ampang Point's management is continually striving to create additional lettable space and enhance the property’s tenant mix to drive footfall. "These efforts, if they materialise, may provide upside to the property’s cashflow. Nonetheless, our assessment does not accord any benefit to these considerations as such plans remain fluid at this juncture," the consultancy said.

RAM Ratings also brought up the risk of tenant concentration as the top five tenants account for 45.5% of the property's total net lettable area and 19.7% of its monthly gross rental income as at end-July 2017. Furthermore, almost half of the tenancies will expire in 2018. "That said, we expect minimal non-renewal risk from its top anchor tenants as one of them is a related party while two have been tenants since Ampang Point’s inception; the other two anchor tenants are only in their second rental cycles," RAM Ratings said. 


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