MARC Ratings has affirmed its ratings of AAA, AA and B- on special purpose vehicle Special Coral Sdn Bhd’s RM250.0 million Senior Class A Medium-Term Notes (MTN), RM50.0 million Senior Class B MTN and RM800.0 million Subordinated Class MTN under the existing RM1.1 billion MTN programme. The ratings outlook is stable.

The ratings reflect the MTN classes’ loan-to-value (LTV) ratios which remain within the respective benchmarks MARC Ratings applies for the rating bands, as per table below:

The LTV ratios are derived from the valuation of the eight-storey Queensbay Mall of RM594.4 million under MARC Ratings’ income capitalisation approach. This represents a 39.6% discount from the purchase price of RM984.5 million based on the recent acquisition of the 433 strata parcels within the Queensbay Mall by CapitaLand Malaysia Trust (CLMT) in November 2022. 

As at end-2022, occupancy level remained strong at 98.7% (2021: 95.8%) of total net lettable area (NLA) of 880,841 sq ft, as the domestic economy improved post-pandemic. The average rental rate for Queensbay Mall in 2022 also increased by 2.2% y-o-y to RM8.54 psf as rental income normalised following the discontinuation of rental rebates in the year. Tenancy renewal risk has been largely mitigated by the management’s strong track record of achieving high tenant retention. The rating agency notes that about 30.4% of its total NLA will expire in 2023, which include major fashion tenants. Nevertheless, their leases are expected to be renewed in the same year.

MARC Ratings regards the mall’s diversified tenant profile that gives rise to low tenant concentration risk as a key strength. Its anchor tenant only contributes to 9.1% of total rental income although it occupies 29.0% of NLA.

Special Coral’s financial performance in 2022 reflected strong recovery to pre-pandemic levels. During the year, revenue increased by 25.5% y-o-y to RM106.5 million. The strong performance was largely due to the discontinuation of rental rebates earlier provided in 2021 and retail operations returning to pre-pandemic levels. As a result, Special Coral registered a 52.3% y-o-y growth in net operating income (NOI) to RM76.5 million in 2022. 

In 2022, coupon repayments of Subordinated Class MTN amounting to RM75.9 million were deferred, as allowed by the terms of the MTN structure, which resulted in its cash position being higher by 53.4%, standing at RM120.8 million as at end-2022. Special Coral will redeem its RM200.0 million outstanding Senior MTNs and RM506.3 million outstanding Subordinated MTNs in March 2023 through utilisation of the sales proceeds of Queensbay Mall.