KLCCP Stapled Group is the largest REIT in Malaysia with a market capitalisation of RM13.6 billion as of May 2024. It owns several prime office and retail assets in Kuala Lumpur including the iconic PETRONAS Twin Towers and Suria KLCC shopping mall that are tourists’ favourites.
Here are seven things I learned from the 2024 KLCCP Stapled Group AGM.
1. Revenue increased 11.0% year-on-year to RM1.6 billion in 2023 as all business segments emerged stronger 2023. Likewise, net profit excluding other non-controlling interests increased 19.0% year-on-year to RM931.1 million in 2023. Dividend per stapled security increased 6.6% from 38.0 sen in 2022 to 40.5 sen in 2023. As shown below, dividend per stapled security in 2023 has reached an all-time high.
2. As usual, the office segment is the primary contributor to the group’s profit before tax, followed by the retail segment. In 2023, profit before tax contributions from the management services and hotel segments remained minimal.
This percentage contribution is expected to change as the group has acquired the remaining 40% stake in Suria KLCC that it did not previously own, for RM2.0 billion. CEO Datuk Md. Shah bin Mahmood explained to the Minority Shareholder Watch Group that the earnings-accretive acquisition will be funded entirely by financing, as the cost of financing is generally lower than that of equity. This will result in the group’s gearing increasing from 2022 to 32% in 2023. This acquisition did not require shareholder approval as it did not exceed the relevant percentage ratio threshold.
In 2023, 83% of the group’s financing was at fixed interest rates. Financing amounting to RM455.0 million, with sukuk murabaha maturing in April 2024, was fully refinanced with a 10-year tenure financing.
3. The office segment remains stable and resilient. The group owns premium grade-A buildings that are strategically located in the city centre. All the group’s office buildings remained fully occupied in 2023. Four out of five of its office buildings (including its 33% stake in Menara Maxis) are on triple-net long-term master leases with locked-in rental rates with expiry between 2025 and 2042. In 2023, the group secured positive rental reversions for Menara 3 Petronas and Menara ExxonMobil for three years.
The development beside Kompleks Dayabumi remains stalled while the management evaluates market conditions and continues to seek long-term tenants.
4. In 2023, the management introduced 35 new tenants to Suria KLCC. According to the CEO, the mall experienced increased footfall and spending, with its occupancy standing at 98% compared to the industry average of 85% in the surrounding area.
The CEO acknowledged to a shareholder that Ramlee Mall currently receives lower foot traffic compared to other areas of Suria KLCC. To address this, management has placed anchor tenants like M&S, and major banks such as CIMB and RHB in Ramlee Mall. This aims to increase footfall and create a more vibrant atmosphere. As with most malls, specific sections naturally attract more visitors. For example, the Ampang side of the concourse floor (Suria KLCC) benefits from its convenient access to the LRT station.
5. According to the CEO, the opening of the competing Exchange TRX has had minimal short-term impact on the occupancy and rental reversion rates of Suria KLCC. Shopper footfall and tenant sales have since stabilized. In 2023, shopper footfall and tenant sales surged by 29.6% and 12.3% year-on-year, respectively. Suria KLCC leverages its strong brand position and strategic location, continuing to be resilient in the face of new competition.
6. The management services segment registered revenue growth from new facilities management contracts as well as the operation of new car park locations. In 2023, the segment oversaw the operation of 1,680 car park bays in the Klang Valley as well as space rental for events and activities. In 2023, the group spent RM8.4 million refurbishing its hotel and upgrading the mall’s parking management system.
7. After suffering three consecutive years of losses, the Mandarin Oriental, Kuala Lumpur Hotel rebounded strongly in 2023. The hotel registered a profit before tax of RM3 million in 2023 compared to a loss before tax of RM23.5 million in 2022. The recovery of global tourism, the weak ringgit, and the pick-up of Meetings, Incentives, Conferences, and Exhibitions (MICE) activities bode well for the hotel. Its revenue per available room surged by 50.0% year-on-year, reaching a historical high in 2023. The hotel’s occupancy improved from 44% in 2022 to 55% in 2023, compared to the industry average of 53.6% in the first half of 2023.
Lot D1 is a piece of vacant land situated in front of the hotel. It has been designated as a car park, generating revenue for the group without any future development plans.
The fifth perspective
The outlook for KLCCP Stapled Group’s office and hotel segments remains bright. However, the main investment risks include asset concentration risk, potential terrorism risk, and retail oversupply.
Consumers’ purchasing power will be dampened by the increase in the Sales & Service Tax (SST) from 6% to 8% in March 2024, as well as the upcoming introduction of a high-value tax. Additionally, local shoppers may be attracted to new malls in the vicinity with similar offerings. Despite these challenges, tourists are expected to continue visiting Suria KLCC for the iconic Petronas Twin Towers.
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