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 that are within the benchmarks of 43.0%, 51.0% and 55.0% MARC Ratings sets for the rating bands. The LTV ratios of Class A MTN, Class B MTN and Class C MTN are 42.8%, 50.7% and 54.9%. The LTV ratios were derived from the outstanding issuances under the different classes against the collateral properties’ aggregate value of RM264.3 million which was determined by using the income capitalisation approach. This represents a 23.6% discount from the collateral properties’ combined market value of RM346.0 million as ascertained by independent valuers. The collateral properties consist of Quill Buildings 1, 3 and 4 in Cyberjaya, and Lotuss Penang, which have a combined total net lettable area (NLA) of 583,685 sq ft.
The collateral properties have strong tenant profiles; each of the properties — except for Quill Building 3 — are occupied by a sole tenant. DHL Asia-Pacific Information Services Sdn Bhd (DHL) occupies Quill Buildings 1 and 4. Quill Building 3 is tenanted by BMW Group and Huawei Technologies (Malaysia) Sdn Bhd (Huawei Malaysia). Lotuss Penang which is occupied by hypermarket owner Lotuss Stores (Malaysia) Sdn Bhd (Lotuss Malaysia) accounts for 47.1% of the total NLA of the collateral properties. DHL accounts for 32.8% while BMW Group 9.1% and Huawei Malaysia 4.6%. As such, the collateral properties are exposed to high tenant concentration risk. The concentration and renewal risks are mitigated by the longstanding tenancy relationships and the purpose-built nature of the buildings (Quill Buildings 1, 3 and 4).
Three of the collateral properties — Quill Buildings 1 and 4, and Lotuss Penang — are 100% occupied while Quill Building 3 recorded a 68% occupancy rate as at end-December 2022. The tenancy lease agreement with Huawei Malaysia will expire in January 2024, for DHL and BMW in 2025 and for Lotuss Malaysia in 2032. While renewal risk is deemed low, any non-renewal would impact the net operating income (NOI) and consequently the LTV ratios.
For 2022, its NOI was marginally higher at RM23.9 million due to lower operating expenses. As of February 22, 2023, the amount outstanding under Issue 3 stood at RM130 million, comprising RM113 million Class A MTN and RM17 million Class B MTN.