The affirmed rating reflects the acceptable loan-to-value (LTV) ratio of 41.9% for the Tranche A notes that remains within the benchmark MARC applies for the rating band. The LTV ratio was derived from the valuation of the collateral building Menara Citibank under MARC’s income capitalisation approach. Owned by Inverfin, Menara Citibank is valued at RM381.9 million under this approach compared to its market value of RM700.0 million as ascertained by an independent valuer as at December 2, 2020. Over the near term, a forecast net reduction of 3.6% in occupancy level has been factored in the rating affirmation.

The negative outlook considers the potential decline in occupancy level by about 6% (47,000 sq ft) of net lettable area (NLA) in the event the retail banking operations of Citibank vacates its premises in Menara Citibank following the bank’s plans to exit the retail banking business in the region. The impact from this departure on the net operating income (NOI) would affect the LTV ratio such that it would exceed the benchmark for the current rating band. While the exit plan is expected to be carried out on a staggered basis and therefore has no immediate impact on NOI, Inverfin may find it challenging to address the potential decline in NOI. This is in light of the subdued rental and occupancy outlook for commercial properties.

Located within the Kuala Lumpur city centre, Menara Citibank has an NLA of 734,533 sq ft. and recorded an occupancy level of 81.2% as at end-2020 (end-2019: 86.0%). The decline in occupancy level was mainly due to the departure of a tenant and reduction in occupancy level by another major tenant. For 2020, Menara Citibank recorded a lower average rental rate of RM5.75 psf (2019: RM6.00 psf). Anchor tenant Citigroup (Citibank Berhad and Citigroup Transaction Services (M) Sdn Bhd) occupies about 52% of the total NLA. The tenant concentration risk from Citigroup is largely mitigated by its longstanding occupancy track record and part ownership of the building.

For 2020, NOI increased 12.8% y-o-y to RM32.6 million. During the year, Inverfin provided rental rebates of about RM0.5 million to retail and food court tenants. No rebates were given to office tenants. Security coverage ratio and finance service coverage ratio remained strong at 4.4x and 6.2x. The outlook would be revised back to stable if Inverfin manages to secure tenant replacements for vacancies that are expected to arise and/or other measures are undertaken such that the LTV ratio is within the threshold level to offset the anticipated lower NOI from a decline in occupancy level.

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