RAM Ratings reaffirms ratings of Quill Retail Malls’ sukuk murabahah

KOTA KINABALU: RAM Ratings has reaffirmed the respective AA1, AA3, A2 and A3 ratings of Quill Retail Malls Sdn Bhd’s RM200 million Class A, RM70 million Class B, RM50 million Class C and RM30 million Class D sukuk under its RM350 million Sukuk Murabahah (2017/2024) facility.

The ratings each carry a stable outlook. The transaction is secured against Quill City Mall – the retail portion of ultimate sponsor Quill Group’s Vision City development.

“The reaffirmation of the ratings is premised on the still adequate collateral coverage provided by QCM amid ongoing developments in its tenant profile and business strategy,” it said in a note.

“We believe RAM’s adjusted valuation of RM750 per square feet (psf) is reasonable vis-a-vis recently transacted prices and the Mall’s recently assessed market value of RM830 million.”

Despite a 41 per cent drop in net property income from higher operating expenses and lower revenue in its financial year ending December 2017, RAM saw that stronger-thanexpected support from the Sponsor during the review period had left the transaction’s bank guarantee (BG) facility and Finance Service Reserve Account (FSRA) untapped during the review period.

“RM60 million of the sukuk held by the transaction’s ultimate shareholders had also been effectively converted into subordinated advances in April 2018, reducing the transaction’s overall leverage and ongoing profit obligations.

“These factors combined will help maintain the required liquidity support for the transaction, especially during the Property’s transition period,” RAM added.

Following the signing of a major lease with Asia Music City Sdn Bhd, QCM’s management team has commenced plans to reposition the mall, with renovations and changes to its tenant mix.

QCM’s current anchor tenant, AEON Co (M) Bhd, will progressively handover 81 per cent of its tenanted net lettable area (NLA) to the management, which will then be reconfigured and converted into higher yielding specialty stores.

After the expected completion of the renovation and repositioning exercise by 1Q 2019, the Property’s total NLA will shrink 12 per cent to 681,00 square feet from 778,000 sf, as lettable space will also be converted into common areas.

The management anticipated the mall’s F&B and entertainment tenant mix to be better diversified as a result of the repositioning, which would increase QCM’s attractiveness and ability to draw footfall, based on its current catchment profile – young single professionals.

AMC, which will be the property’s largest tenant with 16 per centof total NLA post-repositioning, will give the mall a first-mover advantage in the music and lifestyle entertainment niche.

AMC has the technical expertise of UnUsUaL Productions Pte Ltd, a subsidiary of UnUsUaL Limited, which will provide support in organising concerts and events for the Company.