The LTV ratios are derived from the valuation of Menara Shell under the rating agency’s income capitalisation approach using a stabilised net operating income (NOI) of RM41.2 million. Under this approach, the collateral property is valued at RM549 million, representing a 16.5% discount from its market value of RM658 million, as ascertained by an independent valuer as at December 31, 2021. 

The 33-storey Menara Shell, which has a total net lettable area (NLA) of 557,458 sq ft, recorded an increase in average occupancy rate to 99% as at end-June 2022 (end-2021: 93%) when an existing tenant increased its rental area to 17.1% from 10.8% of NLA. Its anchor tenant, Shell People Services Asia Sdn Bhd (SPSA) accounted for a substantial 54.7% of NLA. Tenant concentration risk is mitigated by a long-term tenancy agreement with the anchor tenant that allows for rental claims over the remaining unexpired term of the leases on early termination. In addition, MARC Ratings considers the good track record of Trusmadi Capital’s parent Sentral REIT in managing tenancies which has also been a key factor in Menara Shell being able to retain a strong occupancy level.

For 1H2022, Menara Shell recorded an average rental rate of RM8.11 psf (2021: RM8.15 psf). For 2022, while rental income would decline marginally y-o-y to RM56.1 million, the NOI would be slightly higher at RM43.0 million due to lower projected maintenance cost. For 2023, NOI is projected to increase to RM46.0 million on full year collection of rent from the tenant which has increased rental space. Nonetheless, in the rating case assessment, MARC Ratings has maintained the stabilised NOI at RM41.2 million given ongoing concerns on occupancy levels and on rental rates arising from the subdued demand for office space in KL.

Under this issue structure, the rollover risk for its CP is mitigated by the availability of a commitment provided by creditworthy investors to subscribe to the CP throughout the expected tenure. For its MTN, the refinancing risk is mitigated by the two-year tail period between the expected and legal maturity dates. 

The stable outlook assumes that the collateral property will maintain its operational and financial performance in line with the projections that will remain supportive of the LTV ratios for the rating bands.  

The ratings may come under pressure if tenancies are terminated/not renewed, or if tenancies are renewed at rental rates that are not supportive of the stabilised NOI to be able to maintain LTV ratio thresholds.