MARC has removed its MARC-1/AA ratings on Murud Capital Sdn Bhd’s Senior Commercial Papers/Medium-Term Notes (Senior CP/MTN) programme of up to RM290.0 million from MARCWatch Negative. Concurrently, MARC has attached a negative outlook to the ratings.

Murud Capital is the funding vehicle for MRCB-Quill REIT, the owner of Platinum Sentral, a commercial building with net lettable area (NLA) comprising 419,643 sq ft of office space and 56,727 sq ft of retail space in the KL Sentral transportation hub. The programme is secured by a first legal charge over Platinum Sentral.

The ratings had been placed on MARCWatch Negative on May 28, 2018 to reflect heightened risk to Platinum Sentral’s net operating income (NOI) due to the departure of a key tenant, the Land Public Transport Commission (SPAD), following the government’s announcement on the agency’s abolishment. SPAD occupies a substantial 13.6% of total NLA of Platinum Sentral. The rating action to remove the MARCWatch Negative placement has taken into consideration that the immediate pressure on liquidity has abated as SPAD has now extended its tenancy until December 31, 2018.

The rating agency further understands from the REIT manager, MRCB Quill Management Sdn Bhd, that it is in advanced negotiations to secure a new tenant which would occupy a significant portion of the office space occupied by SPAD after expiry of the tenancy. This is expected to mitigate occupancy risk to a large extent. As at end-June 2018, Platinum Sentral’s occupancy level stood at 92% with an average rental for office space of RM8.83 psf.

The outlook revision to negative incorporates the current challenging conditions in the office rental market that are likely to weigh on the REIT manager’s ability to achieve occupancy level and rental rates that it currently commands. For 2018, Murud Capital assumed NOI of RM43.5 million reflecting a lower office space rental rate of RM8.27psf, which provides a loan-to-value (LTV) ratio of 49.4%. The ratings could face a multi-notch downgrade if Murud Capital experiences a sharp decline in occupancy rate and/or secures lower rental rates that result in a LTV ratio that is not in line with current rating bands.