MARC Ratings has affirmed its ratings on Trusmadi Capital Sdn Bhd’s Issue 1 RM235 million Class A, RM40 million Class B and RM25 million Class C Medium-Term Notes (MTN) at AAA, AA and A. The rating agency has also affirmed its MARC-1 rating on Trusmadi Capital’s Issue 1 RM300 million Commercial Papers (CP). The MTN and CP are subject to a combined issuance limit of RM300 million. The ratings outlook is stable.
The rating affirmations of the MTN classes and CP reflect their loan-to-value (LTV) ratios that are in line with the benchmarks at the respective rating levels. The LTV ratios are derived by the value of the collateral property Menara Shell, using an income capitalisation approach. Under this approach, the value of Menara Shell is estimated at RM587 million, about 12.4% lower than its market value of RM670 million, as ascertained by an independent valuer as at December 31, 2022.
The occupancy level at Menara Shell has remained stable at 99% as of end-March 2023. The anchor tenant, Shell Malaysia Trading Sdn Bhd, a wholly-owned subsidiary of Shell plc, occupies a sizeable 54.7% of net lettable area (NLA) through end-2028. Tenant concentration risk is mitigated by the long-term tenancy agreement with the anchor tenant. The rating agency views lease rollover risk as minimal, as approximately 76.4% of NLA will roll through at least 2025; tenancies also allow for rental claims over the remaining unexpired term of the leases in the case of early termination. The prime location of the collateral property in Kuala Lumpur’s transportation hub would remain supportive of the occupancy levels.
The average rent at Menara Shell increased due to contract renewals at higher rates. As a result, net operating income (NOI) improved to RM47.1 million in 2022. The increase in NOI is also attributable to a one-off reversal of statutory fees. Excluding this one-off item, we project NOI to be around RM44.6 million in 2023 and to average around RM44 million a year between 2023 and 2025.
Accordingly, the updated stabilised NOI to RM44 million from RM41.2 million previously incorporates leases that are in place as of end-March 2023 and an assumption of long-term occupancy at current levels, premised on strong collateral quality and the highly experienced asset manager in Sentral REIT Management Sdn Bhd.
The rating agency notes that the CP is exposed to a rollover or liquidity risk, although this is mitigated by the availability of a commitment provided by creditworthy investors to subscribe to the CP throughout its expected tenure. The MTN, meanwhile, have a two-year tail between their expected and legal maturities to mitigate any refinancing risk.