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Listed on 9 May 2013, KLCC Stapled Group (KLCCSS) is the first and only stapled security listed on Bursa Malaysia. As its name suggests, it owns and generates recurring income from a portfolio of iconic properties situated within Kuala Lumpur City Centre (KLCC). As I write, its investment properties are worth RM15.7 billion, making KLCCSS the biggest REIT listed in Malaysia.
In this article, I’ll bring an update on its financial results, growth plans, and valuation. Here are 11 things to know about KLCC Stapled Group before you invest.
1. In the last 12 months, KLCCSS generated RM595.9 million in revenue from its office portfolio which comprises PETRONAS Twin Towers, Menara 3 PETRONAS, Menara ExxonMobil, Menara Dayabumi, and a 33% stake in Menara Maxis. The office portfolio has maintained revenues at around RM150 million per quarter since listing and remains a stable source of revenue for KLCCSS.
2. In the last 12 months, KLCCSS generated RM496.0 million in sales from its retail assets which comprise Suria KLCC and the retail podium at Menara 3 PETRONAS. Retail revenue has gradually increased from about RM110 million per quarter to RM125 million presently. Like its office assets, its retail portfolio is also a stable and recurring source of income for KLCCSS.
3. In the last 12 months, KLCCSS generated RM174.9 million in revenue from Mandarin Oriental Kuala Lumpur. Revenue has ranged between RM30 million to RM50 million per quarter, and averages RM41.6 million since its listing. Despite marginal fluctuations in revenue, Mandarin Oriental Kuala Lumpur has also been a stable source of income for the last five years.
4. In the last 12 months, KLCCSS generated RM199.1 million in sales from provision of management services to its office buildings, common facilities and estates, and carpark management. This segment has achieved consistent growth since 2013 and now generates RM45-50 million per quarter in revenue.
5. As a result, KLCCSS generated RM1.39 billion in group revenues and RM698.3 million in distributable income over the last 12 months. The REIT has delivered stable results with a steady growth in revenue and income to unitholders over the last five years.
6. As at 30 September 2018, KLCCSS had total borrowings of RM2.265 billion and a gearing ratio of 17.3%. As such, KLCCSS is one of the lowest-geared REITs in Malaysia. Its average cost of debt is 4.59% per annum and the average debt to maturity is 4.33 years. Eighty-four percent of total borrowings are at fixed interest rates. Therefore, KLCCSS is well-protected from a hike in interest rates for the near-future.
7. KLCCSS is working closely with its anchor tenant, PETRONAS, to create a ‘Workplace for Tomorrow’ (WFT) at all its office buildings. WFT is based on the concept where office spaces are ‘reimagined’ to foster open collaboration and positively impact a company’s workplace culture and productivity. As at Q3 2018, the WFT project has achieved 45% completion and is on track for full completion by 2020.
8. Suria KLCC secured seven new tenants — Acme Bar & Coffee, Cigar Malaysia, Delirium, Dotty’s, Michael Kors, APM Monaco, and B& by Boost Juice Bar — in Q3 2018. Presently, Gucci, Puma, Furla, and Mothercare are in the midst of upgrading their stores to create a newer and more premium shopping experience for shoppers.
9. KLCCSS has a number of long-term triple-net lease agreements that will continue to generate recurring income for the next 10-15 years. The long lease terms add income visibility and stability to the REIT:
|Property||Tenant||Lease Expiry Date|
|PETRONAS Twin Tower||Petroliam Nasional Bhd||30 September 2027|
|Menara 3 PETRONAS||Petroliam Nasional Bhd||14 December 2026|
|Menara ExxonMobil||ExxonMobil Exploration & Production Malaysia Inc, Petroliam Nasional Bhd||31 January 2035|
|Menara Dayabumi||Petroliam Nasional Bhd||31 December 2031|
|Menara Maxis||Impian Klasik Sdn Bhd, Tanjung City Centre Property Management Sdn Bhd||1 June 2028|
As at 25 January 2019, KLCCSS was trading at RM7.90 a unit:
10. P/B ratio: As at 30 September 2018, KLCCSS had net assets of RM7.24 per unit. As such, its current P/B ratio is 1.09, which is slightly above its five-year average of 1.06.
11. Dividend yield: Over the last 12 months, KLCCSS paid 36.45 sen in distribution per unit (DPU). As such, its gross dividend yield is 4.61%, marginally below its five-year average of 4.67%. Distributions from a REIT are subjected to a 10% withholding tax for retail investors. Hence, after accounting for tax, net DPU is 32.81 sen, which gives a net dividend yield of 4.15%.
In summary, KLCC Stapled Group has delivered stability in financial results since its listing in May 2013. This is mainly driven by long-term triple-net leases from its main office properties, and steady performances from its retail assets and management services segment. As a result, its unit price has reflected its stable performance over the last five years:
In early 2018, KLCCSS’s unit price dropped 11.9% due to a slight increase in interest rates by Bank Negara Malaysia. At that time, most Malaysian REITs also suffered a steep drop in price. However, as proof of KLCCSS’s resilience, its drop was smaller in comparison to its peers and its unit price was quicker to recover.
However, an investment in KLCCSS is not for one who is investing for growth. This is because KLCCSS remains relatively passive in acquiring new properties to expand its portfolio. Its yield is also lower compared to most Malaysian REITs which tend to yield between 5-7%. So if you intend to invest for higher yields, you may have to look elsewhere.
Looking for a similar Malaysian REIT that invests in office and retail properties? Here are 13 things to know about Sunway REIT before you invest