Under this transaction, a special purpose vehicle, Gandalf Capital Sdn. Bhd. (formerly known as Icon Lagoon Sdn. Bhd.) (Gandalf Capital) is incorporated to raise up to RM118.0 million of CPs/MTNs comprising of RM87.0 million Class A, RM16.0 million Class B and RM15.0 million Class C CPs/MTNs (Notes), which will be on-lent to its parent, Quill Capita Trust (QCT), a real estate investment trust (REIT) to finance the acquisition of real estate and single purpose companies as permitted under the Securities Commission REIT Guidelines. The initial notes issuance would be used to finance the acquisition of four office properties located in Cyberjaya, namely, Quill Building 1 (QB1), Quill Building 2 (QB2), Quill Building 3 (QB3) and Quill Building 4 (QB4) with a total net lettable area of 493,118 square feet (sq. ft.). Gandalf Capital will have a third party first legal charge on the properties including third party assignment over all rights and benefits under the properties’ insurance policies.

Rentals from the lessees of the properties will be the main source for coupon payments during the tenure of the transaction. The Notes have been structured with bullet maturities with expected and legal maturity at the end of the fifth and seventh year from issuance. The two year tail period would provide Gandalf Capital sufficient time to either dispose the properties or refinance the Notes to redeem the outstanding Notes prior to the legal maturity.

MARC has assigned ratings of MARC-1/AAA, MARC-1/AA and MARC-1/A to Gandalf Capital’s Class A, Class B and Class C Notes respectively. The ratings reflect the quality of the properties; quality of its lessees, the lease agreements which have initial lease periods between four to seven years and the reasonably low loan-to-value (LTV) ratios applied in sizing the Class A, Class B and Class C Notes.

Under the transaction, QCT will purchase the properties from Quill Group of Companies whereby upon completion, QCT will be the legal owner of the properties. The REIT will be managed by Quill Capita Management Sdn. Bhd. (QCM), the appointed REIT manager with Knight Frank (Ooi & Zaharin Sdn. Bhd.) as the Property Manager. The major shareholders of QCM are CapitaLand RECM Pte. Ltd. (CRPL), Quill Resources Holding Sdn. Bhd. and Coast Capital Sdn. Bhd. QCM is expected to benefit from the expertise of its shareholders, particularly CRPL, a wholly-owned subsidiary of CapitaLand Financial Limited (CFL), the real estate fund management and financial advisory arm of CapitaLand Limited. CFL was responsible for the development of REITs in Singapore having been involved in the setting up of three out of thirteen listed REIT on the Singapore Exchange Securities Trading Limited (SGX-ST), namely CapitaMall Trust, CapitaCommercial Trust and Ascott Residence Trust.

With a market value of RM280.0 million, QB1, QB2, QB3 and QB4 are office buildings located in the enterprise zone within the Flagship Zone of Cyberjaya. All the properties are 100% occupied with lessees comprising of, amongst others, Asia-Pacific Information Services Sdn. Bhd. (a wholly-owned subsidiary of DHL Worldwide Express B.V), HSBC Electronic Data Processing (Malaysia) Sdn. Bhd., BMW Asia Technology Centre Sdn. Bhd., Affiliated Computer Services Malaysia Sdn. Bhd. and Panasonic R&D Centre Malaysia Sdn. Bhd. Although the properties have relatively high lessee concentration, this risk is somewhat mitigated given that the lease agreements range from four to seven years with option for renewal thereafter. In addition, due to the nature of lessees’ operations and significant costs incurred in the interior finishing as well as furniture and fittings, the likelihood of renewal of the lease is high. The demand for purpose-built office in Cyberjaya is usually influenced by companies or MNCs which have large IT/communication related operations and the availability of office space in central Kuala Lumpur City Centre and KL Sentral.

The Notes are supported by a liquidity reserve equivalent to at least six months coupon on the MTNs in the debt service reserve account. With discounted cashflow valuation of the properties at RM228.1 million, the Class A, Class B and Class C Notes were sized based on the loan-to value limits of 38.5%, 45.5% and 52.0% respectively. Based on the stress tests performed on the properties’ cashflows whereby MARC has assumed non-renewal as well as termination of lease by some of the lessees of the properties under various scenarios, Gandalf Capital will still able to service its debt obligations.

The transaction incorporates a trigger event should either Gandalf Capital fail to meet the minimum required amount in the debt service reserve account or redeem the Notes on the expected maturity date. The appointed security agent, UOB Trustee (Malaysia) Bhd, will have the discretion to proceed with the disposal of the properties upon the occurrence of a trigger event and the authority to manage the disposal of the properties on behalf of noteholders.