Menara Shell’s occupancy has remained stable at 99% as of end-March 2023 (end-June 2022: 99%). The building has a high tenant concentration risk. The anchor tenant, Shell Malaysia Trading Sdn Bhd (Shell), a wholly-owned subsidiary of Shell plc occupies a sizeable 54.7% of NLA through end-2028. However, we view this risk as mitigated by the long-term tenancy agreement with the anchor tenant. We view lease rollover risk as minimal, as approximately 76.4% of NLA will roll through at least 2025; the tenancies also allow for rental claims over the remaining unexpired term of the leases in case of early termination. Near-term rollover includes approximately 17.6% of NLA occupied by AmGeneral Insurance Berhad, whose lease is set to expire on January 31, 2024. In this regard, we take comfort in the good track record of Sentral REIT Management Sdn Bhd (SRM) — the manager of Sentral REIT, Trusmadi Capital’s parent — in managing tenancies, as has been demonstrated in its ability to maintain high levels of occupancy at Menara Shell. SRM manages nine properties with an NLA of 2.1 million sq ft and an average occupancy rate of 77% as at end-March 2023.     

In 2022, the average rent at Menara Shell increased to RM8.34 psf compared to RM8.15 psf in the previous year mainly due to contract renewal at higher rates. As a result, NOI improved to RM47.1 million in 2022, up 10.6% y-o-y. This 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, we have updated the stabilised NOI to RM44 million from RM41.2 million previously. The updated stabilised NOI reflects leases in place as of end-March 2023 and our sustainable long-term occupancy assumption for the property at the current level, which takes into consideration the strong collateral quality and the highly experienced asset manager in SRM.     

Rating outlook