RAM Ratings has assigned an AA2/Stable/P1 corporate credit ratings to Sunway Real Estate Investment Trust (Sunway REIT or the REIT), A1(s)/Stable rating to its previously unrated RM10.0 bil Perpetual Note Programme and affirmed the P1(s) rating of its RM3.0 bil Commercial Papers (CP) Programme. The suffix (s) to the issue ratings indicate that the Issuers  SUNREIT Perpetual Bond Berhad and SUNREIT Capital Berhad  both of which are wholly owned non-operating vehicles of Sunway REIT - rely on inter-company payments from the REIT to meet their financial obligations under the respective programme.

The rating actions are premised on our view that Sunway REIT's credit fundamentals remain supportive of its corporate credit ratings. The REIT is viewed to have a 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.

The Perpetual Note Programme is rated two notches below the REIT's long-term corporate credit rating to reflect its subordinated position and the risk of deferrable coupon payments. The issue rating of the CP Programme is reflective of the REIT's credit profile. As at end-June 2023, securities pledged under the CP Programme and other pari passu debts sharing the same security provided collateral cover of 2.35 times over outstanding debts. 

Sunway REIT's revenue for 1H FY Dec 2023 outperformed our expectations, rising 17.0% y-o-y to RM349.33 mil as a result of high single-digit rental reversion, encouraging tenant sales at the REIT's retail malls and a higher lease contribution from its hotels. Its net property income margin while lower due to increased electricity charges, was still a respectable 73% (FY Dec 2022: 77%). Fixed charge coverage eased to 3.07 times (FY Dec 2022: 3.73 times) owing to higher interest rates and a slightly heavier debt load. Nonetheless, we believe potential income upside from p