10 Things You Must Know About KLCCP Stapled Group

KLCC Property Holdings Bhd (KLCCP) was listed on Bursa Malaysia on 18 August 2004. Subsequently, KLCCP has completed a corporate restructuring exercise on 9 May 2013 which led to the creation of Stapled Securities where one unit of KLCC REIT is stapled to one share of KLCCP. Presently, the two are collectively known as KLCCP Stapled Group (KLCCSS) and the Stapled Securities is quoted and traded at one single price.

As I write, KLCCSS is worth RM 14.0 billion in market capitalization, thus, it is the largest REIT listed on Bursa Malaysia. Here, I’ll list down 10 key things that you need to know first before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: KLCC / KLSE: 5235SS
Market Capitalization: RM 14.0 billion (25 February 2018)

Share Price: RM 7.76 (25 February 2018)

Industry: Reit

Syariah Compliant: Yes

#2: The Business

KLCCSS is involved in property investment, development, and management where its portfolio is mainly located within the KLCC Development, one of the largest integrated real estate developments in the world. It has four main business segments:

1. Office Buildings
   KLCCSS has 4 office buildings in its portfolio. They are the Petronas Twin Towers, Menara 3 Petronas, Menara ExxonMobil and Kompleks Dayabumi. Presently, except for Menara ExxonMobil, the 3 buildings are leased to Petronas under a Triple Net Lease Agreement which has a duration of 15 years. Meanwhile, for Menara ExxonMobil, the office building is leased to ExxonMobil E&P Malaysia Inc. for a duration of 9 years starting on 1 February 2017.
   In addition, KLCCSS has a 33% minority interest in Menara Maxis. It is leased to Impian Klasik Sdn Bhd & Tanjung City Centre Property Management Sdn Bhd under a Triple Net Lease Agreement that also has a term of 15 years.
   Combined, the 5 office buildings have contributed RM 591.8 million and RM 476.7 million in revenue and profits before tax (PBT) to KLCCSS, making it its largest income contributor in 2017.
2. Retail
   KLCCSS has two retail-based assets in its portfolio: 60% interest of  Suria KLCC and the retail podium of Menara 3 Petronas. Both assets are tenanted to a wide range of retailers on terms ranging between 3 – 5 years. In 2017, this segment has contributed RM 488.4 million and RM 374.2 million in revenue and PBT to KLCCSS, thus, making it its second largest contributor.
   
3. Management Services
   KLCCSS is engaged in providing facility management services via its subsidiary, KLCC Urusharta Sdn Bhd and car park services under its subsidiary, KLCC Parking Management Sdn Bhd. In 2017, both of its subsidiaries have contributed RM 192.8 million and RM 75.7 million in revenue and PBT to KLCCSS. It is the third largest contributor of income to the group.  
   
   
4. Hotel
   KLCCSS owns 75% interest in Mandarin Oriental Kuala Lumpur, a 5-star luxury hotel that has 632 guestrooms, 5 restaurants, 3 bars and a bakery located in the heart of the KLCC Development. In 2017, the hotel has made RM 167.2 million and RM 5.2 million in revenue and PBT to KLCCSS. It is the smallest income contributor to KLCCSS.
   

#3: The Financials

Since its listing, KLCCSS has reported stable financial results:

1. Revenue has maintained at RM 300 – 350 million per quarter.
2. Distributable Income was kept at RM 140 – 180 million per quarter.
3. DPU has maintained, on average, 8 – 9 sen per quarter.

Source: Quarterly Reports of KLCCSS

#4: Major Acquisitions

There is no major acquisition of new investment properties announced made by KLCCSS.

#5: Lease Expiry

The following are the expiry dates of some of KLCCSS’s lease agreements:

1. Petronas Twin Towers: 30 September 2027
2. Menara 3 Petronas: 14 December 2026
3. Kompleks Dayabumi: 31 December 2031
4. Menara ExxonMobil: 31 January 2026
5. Menara Maxis: 1 June 2028

#6: Future Prospects
Here are the key highlights of KLCCSS moving into the financial year 2018:

1. The office segment is expected to remain stable as it is enjoying a 100% occupancy rate with leases that are long-term in nature.
2. The Mandarin Oriental Kuala Lumpur will continue with its ongoing refurbishment of guestrooms throughout 2018 and the completion of the entire project is set to be in 2019.

#7: Debt Profile

As at 31 December 2017, KLCCSS has reported having RM 2.25 billion in borrowings where its average cost of debt is 4.55% and the average maturity period of its debt is 5.09 years. 84% of its debt is based on fixed interest rates.

This works out to be a gearing ratio of 12.7% of its total assets, substantially below the benchmark of 50% set by Securities Commission of Malaysia. This provides KLCCSS a significant debt headroom of RM 6.65 billion to fund any future acquisitions of investment properties if new opportunities arise.

#8: Valuation

As I write, KLCCSS is trading at RM 7.76 a unit.

As at 31 December 2017, KLCCSS has reported having RM 7.22 in net asset value a unit. Thus, its current P/NAV works out to be 1.07.

KLCCSS adopts a distribution policy to declare and pays out at least 90% of its distributable income on a quarterly basis. For the last 12 months, KLCCSS has paid out 36.15 sen in DPU.

If KLCCSS is able to maintain its DPU at 36.15 sen for the next 12 months, its gross dividend yield is expected to be 4.66%. For individual investors, it is prudent to deduct 10% withholding tax from 36.15 sen when calculating your net dividend yield, as such, I would expect net dividend yield to be 4.19%.

#9: Investors Relation

For further enquiries or to request for additional investment information on KLCCSS’s Investors Relation matters, you may contact:

Bindu Menon

Email: bindu@klcc.com.my

Website: http://www.klcc.com.my/investorrelations/index.php

#10: Major Shareholders

The substantial shareholders of KLCCSS with their latest shareholdings as at 25 February 2018 are as followed:

– KLCC (Holdings) Sdn Bhd: 64.68%

– Amanah Saham Bumiputera: 5.14%

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