7 things I learned from the 2023 KLCCP Stapled Group AGM

KLCCP Stapled Group owns a portfolio of seven properties situated in Kuala Lumpur City Centre, which includes iconic landmarks such as the PETRONAS Twin Towers, the world’s tallest twin towers; the Suria KLCC shopping mall; and the Mandarin Oriental, Kuala Lumpur hotel. As Malaysia moved into the endemic phase of the pandemic and economic activity gained momentum, the group achieved a strong performance that matched its pre-pandemic levels.

Here are seven things I learned from the 2023 KLCCP Stapled Group AGM.

1. Revenue increased 24.6% year-on-year to RM1.5 billion in 2022 as the retail and hotel segments recovered. The performance was anchored by the stable office segment. Likewise, distribution per stapled security improved 13.1% year-on-year from 33.6 sen in 2021 to 38.0 sen in 2022. The distribution in 2022 rebounded to the pre-pandemic level, which is a good sign for unitholders.

The impact of the prosperity tax on the group was RM19.7 million in 2022, which represented 2.5% of the group’s net profit in the same year. The group’s sound financial performance indicates that it was relatively unaffected by the alterations in the minimum wage policy. Additionally, it experienced only a minimal impact from the rise in the overnight policy rate, as 83% of its borrowings were at fixed rates in 2022.

2. The office segment remained the largest revenue contributor to the group. The group’s office buildings remained almost fully occupied in 2022. Strategically situated in Kuala Lumpur’s City Centre, which serves as an oil and gas hub, the offices are primarily leased to tenants in the industry, including the group’s significant shareholder Petroliam Nasional Berhad (PETRONAS), under long-term triple-net arrangements. These tenancies ensure that unitholders can anticipate a reliable income stream in the future. Moreover, the PETRONAS Twin Towers commands rental rates in the top quartile due to its prime location.

The pedestrian bridge connecting Kompleks Dayabumi and Central Market was also completed to drive footfall to Kompleks Dayabumi from the touristy Central Market Kuala Lumpur.

3. Total tenant sales at Suria KLCC hit a record high and surpassed its pre-pandemic level by 9.5% upon the return of tourists and reopening of the Malaysian economy. The mall reaped the rewards of shoppers engaging in ‘revenge spending’. The majority of shoppers, approximately 80%, are locals. In 2022, the mall’s occupancy rate was 92%, which is higher than the average retail occupancy rate of 72.3% in the capital city.

4. The occupancy rate at Mandarin Oriental, Kuala Lumpur surged from 16% in 2021 to 44% in 2022 as banqueting, weddings, meetings, and events resumed. Its occupancy rate reached almost 50% in April 2023. When questioned by a shareholder, the CEO shared that the hotel’s earnings before interest, tax, depreciation, and amortization (EBITDA) were positive, but it recorded a net loss. The hotel is grappling with various challenges, including labor shortages and the escalation of energy and food expenses.

5. In 2022, the management services sector managed more than 14,000 car park bays and secured additional 1,604 bays in Putrajaya along during the year. It’s worth noting that effectively managing parking facilities can be a steady source of revenue for property management companies, particularly in busy areas where parking is in high demand.

6. A unitholder pointed out that the Lot D1 and Dayabumi Citypoint projects have been suspended and deferred for several years. CEO Datuk Md. Shah bin Mahmood explained that there is an oversupply of office space in Kuala Lumpur. All development projects will only be kickstarted once anchor tenants are secured. Lot D1, situating in front of Mandarin Oriental, Kuala Lumpur is a plot of vacant land gazetted as a car park.

7. A unitholder pointed out that the group’s cash stood at RM1.1 billion in 2022 while its debt stood at RM2.4 billion and financing costs amounted to RM105.8 million. The CEO mentioned that the cash pile will be used to pare down its borrowings, for day-to-day operations, capital requirements and given out to unitholders as distributions.

The fifth perspective

KLCC Stapled Group has one of the lowest gearing ratios among Malaysian REITs at just 18.1%. Further, its interest coverage ratio stood at 9.7 times in 2022 which means its operating cash flow in 2022 was more than sufficient to service almost 10 years’ worth of financing costs. The imminent return of Chinese tourists is an extra boost to the group’s retail and hotel segments. Headwinds facing the industry include an inflationary environment, partly caused by the Russia-Ukraine conflict, resulting in increasing energy and food prices. These factors have a negative impact on the disposable income and spending power of consumers, leading to potential challenges in the industry.

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