KUALA LUMPUR (Oct 23): KLCC Property Holdings Bhd (KLCC Prop) is considering the possibility of injecting its assets worth over RM12 billion — including the iconic Petronas Twin Towers office tower and Suria KLCC shopping mall — into a real estate investment trust (REIT) or business trust to maximise shareholder value, a high-level source said.
“That is still being looked at. I’d expect it to happen only six to nine months down the road, at the soonest,” the source within the company told theedgemalaysia.com.
Among other things, there are still “some tax-related issues” that need to be sorted out first, the source added without elaborating.
At 2.37pm Tuesday, KLCC Prop was up five sen or 0.82% to RM6.12 with 374,200 shares done. This was 0.87 times its net asset per share of RM7.01 as at June 30, 2012.
On June 28, KLCC Prop said the company’s key management had been authorised to explore a corporate structure, “including an appropriate REIT, or equivalent, with the objective of optimising shareholder value”. It did not elaborate.
The announcement came after several analysts, including those with Maybank Investment Bank Research, had pointed out that KLCC Prop would see a re-rating catalyst should it decide to embark on a REIT.
The decision, if it happens, would also likely create a new benchmark for Malaysia’s REIT market, they said. This was given the size of KLCC Prop’s assets, which are at least double the largest REIT in the Malaysian market currently.
At RM6.12, KLCC Prop had appreciated 42% over four months from the RM4.31 it closed at on June 28, prior to the announcement of the company’s intent to explore a better corporate structure.
KLCC Prop closed as high as RM6.21 on Oct 12 this year.
In notes accompanying unaudited accounts for the second quarter ended June 30, 2012, KLCC Prop said: “As at the date of this report, the management of the company is still in the midst of exploring an appropriate structure for the company.”
“The company will make the necessary announcement upon finalisation and approval of the proposal by the Board,” it added.
Petroliam Nasional Bhd (Petronas) owns 52.59% of KLCC Prop, with the Employees Provident Fund Board (EPF) being the second largest shareholder.
Filings showed the EPF being a net buyer of KLCC Prop the past four months. The EPF’s direct and deemed holdings rose to 9.1% from 8.96% between June 28 and Oct 11 this year, filings showed.
Besides a REIT structure, KLCC Prop can also consider adopting a business trust structure. This was after Prime Minister Datuk Seri Najib Razak proposed during the tabling of Budget 2013 on Sept 28 that the transfer of any business, asset and real estate to a business trust be exempted from stamp duty and real property gains tax (RPGT) at the early stage of establishment of the business trust. These incentives take effect Jan 1, 2013.
Like REITs, business trust generally commit to paying regular dividends. Business trusts, however, are able to pay dividends from its cash flow even if it makes zero profits and as such are generally deemed as of higher risk relative to REITs.
That business trusts are able to have a higher amount of assets under development in is portfolio, compared with a ceiling of 10% of REITs, makes business trusts a better structure for businesses with strong cash flow but have high capital expenditure needs.
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