MARC Ratings has affirmed its rating on Sime Darby Property Berhad’s (SD Property) RM4.5 billion Islamic Medium-Term Notes (IMTN) Programme (Sukuk Musharakah) at AA+_IS with a stable outlook. The outstanding under the rated programme stood at RM1.4 billion as of November 30, 2023.

SD Property’s strong sales track record in well-established townships, and strong balance sheet, characterised by low leverage, remain key rating drivers. The rating benefits from a one-notch uplift on implicit support from majority shareholder Permodalan Nasional Berhad which holds a 58% stake in the property developer.

The overall take-up rate for projects launched during 9M2023, with a combined gross development value (GDV) of RM3.2 billion, was a commendable 75% as at November 5, 2023. These launches are primarily within its existing maturing townships with well-established connectivity. With developable landbank (excluding non-core lands) standing at about 13,640 acres and being within and near populous areas, the group has strong potential to undertake further township and industrial developments. With unbilled sales of RM3.7 billion as at end-September 2023, the group has strong earnings visibility through 2026. The rating agency notes that relative to the size of its projects, completed inventories remain modest at RM433.1 million as at end-9M2023.

SD Property’s strategy is to be a sustainable real estate player with broader presence in property development, investment, and asset management from a pure play property developer. This is being reflected through its focus on increasing industrial and logistics property launches as part of its product diversification that includes build-to-lease products to further strengthen the group’s recurring income stream. MARC Ratings notes the group had established its inaugural Shariah-compliant Industrial Development Fund and secured its first tenant for Metrohub 2, E-Metro Logistics Park, that will occupy about 21% of the 800,000 sq ft gross lettable area, reflecting the increased demand for warehousing and logistics facilities. Its industrial launches with a combined GDV of RM675.6 million as at end-9M2023 achieved an average take-up rate of 86% as at November 5, 2023.

Its sole overseas project in which it has a 40%-stake is the seven-phase Battersea Power Station that is currently progressing with the Phase 3B residential component comprising a 204-unit apartment building. Launched in October 2022 and achieving practical completion in November 2023, the residential units registered a take-up rate of 53% as at end-9M2023, reflecting the soft property sentiment in the UK amid a higher interest rate environment. The Phase 3B commercial office building known as 50 Electric Boulevard is expected to be completed by 1Q2024.

During 9M2023, the group recorded higher revenue of RM2.4 billion and pre-tax profit of RM440.7 million (9M2022: RM1.8 billion; RM323.1 million), mostly driven by development progress largely from its Klang Valley townships. Group borrowings rose to RM3.4 billion, translating to a gross debt-to-equity ratio of 0.34x as at end-September 2023 (2022: RM3.0 billion; 0.31x). Additional drawdown of RM600.0 million in August 2023 under its existing rated programme was largely used to part fund its land acquisitions that would further strengthen its key position in the industrial development sector. Liquidity position remains strong with cash balances of RM661.9 million and unutilised credit lines of RM3.1 billion under the IMTN programme that would support its operational and strategic activities.

Cyndy Goh, +603-2717 2941/ cyndy@marc.com.my

Umar Abdul Aziz, +603-2717 2962/ umar@marc.com.my 

Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my