RAM Ratings affirms AA2 rating of Sunway REIT, A1(s) and P1(s) ratings of debt facilities issued by its funding conduits

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 our 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.

Sunway REIT's financial performance for 1Q FY Dec 2024 is on track to meet our 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