MARC has issued this update on Kinabalu Capital Sdn Bhd following an increase in the existing issuance amount under Issue 1 from RM185 million under the Commercial Papers/Medium-Term Notes (CP/MTN) Programme to RM220 million. The proceeds of RM35 million from the increase on Issue 1 will be advanced to MRCB Quill-REIT (MQ REIT) as part of their central treasury management.

Kinabalu Capital is wholly owned by MQ REIT, a real estate investment trust with a portfolio of commercial buildings. Issue 1 under the CP/MTN Programme is secured by a third-party first legal charge over Menara Shell, the collateral property, which is a 33-storey purpose-built office building located on Jalan Tun Sambanthan, KL Sentral. Menara Shell has a net lettable area of 557,053 sq ft and occupancy level of 92% as at end-September 2018, which is expected to increase to 98% if the tenancy agreement with a prospective tenant is concluded. The average rental rate of Menara Shell is at RM7.57 per sq ft.

MARC affirmed Kinabalu Capital’s Issue 1 of RM220 million Class A MTN, RM40 million Class B MTN and RM20 million Class C MTN at AAA, AA and A and the short-term rating of MARC-1 on the CP of up to RM280 million on January 18, 2019. Following the increase of RM35 million, the amount outstanding under Issue 1 comprises RM20 million Class A MTN and RM200 million CP which is within the combined Class A MTN and CP limit of RM220 million for the issuance. MARC highlights that as a result of the increase, the current outstanding has reached the rating agency’s loan-to-value (LTV) threshold for AAA and MARC-1 ratings, based on the assessed capital value. This indicates that there is no headroom for a further drawdown, and weakening in occupancy level and/or rental rates which will impact the net operating income (NOI).

The rating agency’s assessed capital value for Menara Shell is RM513.3 million, derived from capitalising the property’s stabilised NOI of RM38.5 million. The ratings could be lowered if the NOI declines as a result of any of the aforementioned factors. MARC will continue to monitor the performance of Menara Shell and provide necessary updates.

Contacts:
Hari Vijay, +603-2717 2937/ harivijay@marc.com.my;
Lim Hui Boon, +603-2717 2959/ huiboon@marc.com.my.