KLCC Property Holdings Berhad (KLCCP) was incorporated and listed in Malaysia in 2004. In 2013, a corporate restructuring exercise was undertaken by stapling KLCCP to KLCC REIT to form the existing KLCCP Stapled Group.
KLCC REIT owns PETRONAS Twin Towers, Menara ExxonMobil, and Menara 3 PETRONAS. KLCCP owns a property portfolio that includes Suria KLCC mall (60%-owned); Mandarin Oriental, Kuala Lumpur (75%-owned); Kompleks Dayabumi; Menara Maxis (33%-owned); and Lot D1, a vacant plot of land adjacent to Mandarin Oriental.
Therefore, as at 31 December 2018, KLCCP Stapled Group has eight properties with a combined gross floor area of over 11 million square feet valued at RM15.7 billion.
Here are seven things I learned from the 2019 KLCCP Stapled Group AGM:
1. Revenue improved marginally year-on-year by 2.9% to RM1.4 billion but net profit weakened by 17.2% year-on-year from RM1.0 billion in 2018 –a five-year low. Distribution per stapled security stood at 37.00 sen, which represents an increase of 2.4% year-on-year. A total dividend payment of RM668.0 million was distributed to holders of stapled security in 2018, which translates to 96% of distributable income.
2. The office segment remained the major contributor to the Group’s revenue and profit before tax. The hotel segment constituted 12.3% of the Group’s revenue but only registered RM0.1 million in profit before tax.
3. Mandarin Oriental faces stiff competition from competing hotels in the vicinity. Five new hotels introduced approximately 1,000 new rooms in 2H 2018. Another 1,600 rooms from five more new hotels are targeted to be released by 2022. The increase of minimum wage starting from January 2019 will also negatively impact the hotel’s profit. As part of the master refurbishment plan that commenced in 2011, Mandarin Oriental completed its guestroom renovation in 2018 by refurbishing all 629 rooms. In 2018, its occupancy rate stood at 55%, which is an improvement from 51% in 2017.
4. In 2018, the group maintained a 100% occupancy rate across its office buildings comparaed to the 78% average office occupancy rate in Kuala Lumpur. Petroliam Nasional Berhad (PETRONAS) is the sole lessee of PETRONAS Twin Towers and Menara 3 PETRONAS, and one of the two lessees of the Menara ExxonMobil. At the same time, PETRONAS is the largest shareholder of KLCCP Stapled Group with an indirect 64.7% stake.In 2018, PETRONAS contributed 40% of the Group’s revenue and 58% of profit before tax. The office market in Kuala Lumpur continues to be competitive and with new supply emerging from co-working spaces. The CEO shared that Kompleks Dayabumi and office buildings in the KLCC cost about RM419 and RM1,088 per square foot respectively, as evaluated by independent valuers. The triple-net leases with PETRONAS has a 10% positive rental reversion every three years.
5. When a stapled security holder asked if Parkson was forced to leave Suria KLCC, the management responded that Parkson closed its outlet after its 20-year lease with Suria KLCC ended. Parkson previously occupied 124,000 square feet of floor area that made up of 12% of total net lettable area and contributed to 3% of gross income of Suria KLCC. The space will be leased out to a number of tenants and opened in two phases in December 2019 and mid-2020 respectively. The CEO mentioned that Isetan is also Suria KLCC’s anchor tenant and occupies about 200,000 square feet. Its tenancy lease will expire in 2022. The Group achieved a 98% retail occupancy rate against the industry average of 87% in the city centre. On a separate note, the redevelopment of City Point Podium in Kompleks Dayabumi will take approximately three and a half years after securing anchor tenants.
6. KLCC REIT Management Sdn Bhd is paid 3% of net property income (NPI) as performance fees and 0.3% of total asset value of KLCC REIT as base fees annually. KLCC REIT Management manages and administers KLCC REIT and is KLCCP’s wholly-owned subsidiaries. On average, a REIT manager is paid between 3% and 5% of NPI annually. In 2018, a total management fee of RM45.6 million was paid to KLCC REIT Management in cash but not in the form of shares.
7. The CEO clarified a shareholder’s query that KLCCP Stapled Group’s holding company, KLCC (Holdings) Sdn Bhd, is the joint venture partner of Sapura Resources Bhd to develop a Lot 91 office tower project in the KLCC area. KLCCP Stapled Group has the right of first refusal on buildings developed by its holding company. Its gearing ratio stood at 17.1% as at 31 December 2018 —one of the lowest-geared REITs in Malaysia. Cost of debt is 4.6%. Average debt maturity profile is 4.1 years with 84% of its borrowings at fixed interest rates.
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