MARC has affirmed its ratings of MARC-1/AA on Murud Capital Sdn Bhd’s (Murud Capital) Senior Commercial Papers/Medium-Term Notes Programme (Senior CP/MTN Programme) of up to RM290 million. The outlook on the ratings is stable. Murud Capital currently has an outstanding RM279 million Senior CP under the Senior CP/MTN Programme.
Murud Capital is a special purpose vehicle incorporated by MRCB-Quill REIT to set up the Senior CP/MTN Programme. Issuances under the programme are secured by a third-party first legal charge over Platinum Sentral in KL Sentral. The ratings reflect the loan-to-value (LTV) ratio of 49.2% that is in line with MARC’s LTV benchmark ratio for the rating bands.
Platinum Sentral comprises five blocks of four- to seven storey buildings with office and retail space of 419,643 sq ft and 56,727 sq ft respectively. Occupancy levels stood marginally lower at 99.1% as at end-2016, although its retail component has come under pressure from increased competition in the vicinity. Nonetheless, 93% of Platinum Sentral’s rental income of RM54.4 million is contributed by its office component. The average rental rate has increased to RM8.95 psf (2015: RM8.68 psf) on secured lease agreements ranging from three to 15 years. Despite the lengthy tenancy agreements, Platinum Sentral is exposed to tenant concentration risk, given that three tenants account for 77% of the building’s net lettable area. The tenancy renewal for two of its major tenants is due in year 2018. The renewal risk is mitigated by the status of the major tenants as government-linked entities who are less likely to relocate.
MARC notes that termination risk is mitigated through lessor protections in the tenancy agreement, allowing Platinum Sentral to claim rental charges for the remaining period in the event of premature tenancy termination. Pressure on rental rates may also arise due to the oversupply of office buildings in KL with similar characteristics. MARC takes comfort from the creditworthiness of its major tenants to reduce collection risk as well as MRCB Quill Management Sdn Bhd’s (the REIT manager) stringent debt recovery process to maintain a healthy debt ageing profile.
In 2016, Platinum Sentral reported a net operating income (NOI) of RM46.1 million (2015: RM46.0 million on an annualised basis), above MARC’s stabilised NOI of RM43.7 million. This was sufficient to meet the debt service cover ratio requirement of 1.50 times under the Senior CP/MTN Programme. The stabilised NOI takes into account the rating agency’s assessment of Platinum Sentral’s overall quality as well as the economic and market trends of both the office and retail components in the property sector. Using this stabilised NOI, MARC’s valuation of Platinum Sentral is RM567.5 million, representing a 24.3% discount to the property’s appraised current market value of RM750 million.
The presence of an irrevocable commitment provided by the existing Senior CP holders on the respective Senior CP up to the legal tenure adequately addresses the short-term maturity rollover risk. In addition, the refinancing risk in 2020 arising from the non-amortising feature of the Senior CP/MTN is addressed by the two-year period between expected and legal maturities of the rated programme, providing headroom for disposal of the collateral property by the security trustee in the event that Murud Capital is unable to redeem or refinance the outstanding CP/MTN upon its expected maturity.
The stable outlook reflects MARC’s expectations that Platinum Sentral will continue to demonstrate commendable operating and rental performance that are supportive of the ratings.
Contacts: Adib Asilah, +603-2082 2243/ email@example.com; David Lee, +603-2082 2255/ firstname.lastname@example.org
March 10, 2017