KLCCP Stapled Group is the largest REIT in Malaysia. It owns a number of iconic assets within the city centre of Kuala Lumpur including the PETRONAS Twin Towers and Suria KLCC. In 2020, its seven properties across the office, retail, and hotel segments were valued at RM15.7 billion altogether.
2020 was an unprecedented year. The COVID-19 induced lockdown still has an impact on corporate companies across the board. The retail and hotel segments of the KLCCP Stapled Group were negatively affected by the resurgence of cases across the country, and restrictions on large gatherings including meetings, incentives, conventions, and exhibitions (MICE) as well as interstate travel.
Here are six things I learned from the 2021 KLCCP Stapled Group AGM.
1. Revenue declined by 12.9% year-on-year to RM1.2 billion while distribution per stapled security dropped by 21.1% from 38 sen in 2019 to 30 sen in 2020. The weaker performance was due mainly to the retail and hotel segments being affected by movement restrictions imposed by the Malaysian government to curb the spread of COVID-19. The group provided more than RM90 million worth of assistance packages on a lease-by-lease basis to retail tenants affected by the pandemic.
2. The group’s performance was bolstered by the stable returns from its office segment. The segment remained as the largest revenue contributor to the group in 2020. The KLCC precinct is positioned as an oil-and-gas hub that draws players from the industry with long-term locked-in tenancies.
The group managed to extend its triple net leases for Menara 3 Petronas and PETRONAS Twin Towers for another 15 years to 2041 and 2042 respectively. This provides income stability to its unitholders despite the oversupply of office space in Kuala Lumpur and the growing work-from-home trend. The group also saw the lease renewal with its tenants – ExxonMobil Exploration, Production Malaysia Inc and PETRONAS – at Menara ExxonMobil for another three years of the 18-year lease tenure.
3. Despite the temporary closure of non-essential stores and other operating challenges, the group onboarded 40 new retail tenants including some first standalone stores in Malaysia and exclusive ones to Suria KLCC. The empty space left by the previous department store operator, Parkson, was reconfigured into specialty stores that’s occupied by 72 tenants. The occupancy of the mall dropped slightly from 99% in 2019 to 97% in 2020. Due to the delayed recovery of the retail sector, the group will continue to offer rental rebates to selected tenants in 2021.
4. As pointed out by Minority Shareholders Watch Group, investment property under construction amounting to RM81.4 million was written off in 2020 because of the prolongation of the redevelopment of the City Point Podium (an annex to Menara Dayabumi). The six-storey podium was demolished in 2015 and piling works were completed in 2017. According to CEO Datuk Hashim Wahir, the delay was exacerbated by the soft real estate market, the oil price rout, and the pandemic. To date, substructure works are done and the management is actively looking for an anchor tenant prior to any further development works over at least 40 months.
The retail segment is already grappling with many existing challenges such as heightened competition in the already crowded market and the boom of e-commerce. It may not be an easy feat for the management to secure an anchor tenant during this crisis. A 10-metre pedestrian bridge was built across the Klang River to connect the building to Central Market Kuala Lumpur in order to improve its vibrancy and connectivity.
5. Mandarin Oriental (MO), Kuala Lumpur was pretty much closed during the year because of the crisis. Its revenue contribution dropped drastically from 12.5% in 2019 to 4.3% in 2020. A number of initiatives were introduced to boost its occupancy rates including ‘staycation at MO’ and ‘working from MO’ programmes. As a result, its weekend occupancy peaked at 44% in December 2020 until the temporary ban of interstate travel in January 2021.
The hotel launched its assisted buffet arrangement to adhere to social distancing. It turned to banqueting and online channels in 2020 to drive sales to sustain its business amid price wars between luxury hotels. The senior management team took voluntary pay-cuts while the hotel staff took unpaid leave as part of the hotel’s cost reduction efforts. A total shutdown of the hotel was not on the cards.
6. The group’s retail and hotel segments benefited from various government stimulus packages including a 10% discount on electricity fees for six months in 2021 as well as the tourism tax exemption. On a separate note, it allocated 5% of its total expenditure for its sustainability agenda annually.
The fifth perspective
KLCCP Stapled Group has been an steady dividend payer since its formation in 2013. In fact, its distribution increased every single year until 2020 where it was disrupted by the outbreak of the virus. KLCCP’s performance will most likely maintain given the strong backing of its sponsor and the stable long-term office leases as well as the irreplaceable assets despite the ongoing challenges.
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