MARC Ratings has affirmed its long-term ratings of AAA, AA and A on Kinabalu Capital Sdn Bhd’s Issue 3 of RM113 million Class A, RM21 million Class B and RM11 million Class C Medium-Term Notes (MTN). The outlook on all ratings is stable.
The affirmed ratings reflect the loan-to-value (LTV) ratios of the classes under the issuance that are within the LTV benchmarks MARC Ratings applies for the rating bands. The LTV ratios of Class A MTN, Class B MTN and Class C MTN are 42.6%, 50.5% and 54.7%.
The collateral properties under the issuance are Sentral Buildings 1, 2 and 3 (formerly known as Quill Buildings 1, 4 and 3) in Cyberjaya, Selangor, as well as Lotus’s Penang on Penang Island. The LTV ratios are derived from the valuation of the properties based on a stabilised net operating income (NOI) of RM23.6 million. Under MARC Ratings’ income capitalisation approach, the collateral properties are valued at RM265.1 million which represents a 24.5% discount from the properties’ aggregate market value of RM351.0 million as ascertained by independent valuers as at December 31, 2023.
The buildings’ occupancy remained unchanged with the same customer profile and structure from end-December 2022. Lotus’s Penang is tenanted by hypermarket owner Lotus’s Stores (Malaysia) Sdn Bhd, accounting for 47.1% of total net lettable area. Sentral Buildings 1 and 2 are tenanted by DHL Asia Pacific Information Services Sdn Bhd, accounting for 32.8% while Sentral Building 3 is tenanted by companies under the BMW Group, accounting for 9.1% and Huawei Technologies (Malaysia), accounting for 4.6%. The collateral properties remain exposed to high tenant concentration risk. Nevertheless, the risk is mitigated by the longstanding tenancy relationships and the purpose-built nature of the buildings. MARC Ratings also draws comfort from the expertise of Kinabalu Capital’s parent, Sentral REIT, and demonstrated track record of the REIT Manager, Sentral REIT Management Sdn Bhd, in mitigating occupancy and renewal risks.
For 2023, its total revenue stood marginally higher at RM29.0 million (2022: RM28.2 million), recording NOI of RM23.7 million. Debt service coverage ratio (DSCR) and security cover ratio (SCR) stood at 5.03x and 2.70x as at end-2023 (2022: 6.28x; 2.66x), which remain within the DSCR and SCR covenants of 1.50x and 1.90x under the programme.