KUALA LUMPUR: In an exercise to unlock the value of its property assets without losing control over the ownership and franchise, KLCC Property Holdings Bhd (KLCCP) has proposed a stapled real estate investment trust (stapled REIT).
Under the structure, three prime properties — Petronas Twin Towers, Menara ExxonMobil and Menara 3 Petronas — would be injected into a REIT for a total value of RM8.76 billion and in return, shareholders of KLCCP would get stapled securities.
The REIT together with KLCCP would then be listed as a single entity called KLCCP Stapled Group, according to the company’s announcement yesterday.
“The proposed stapling is undertaken to create KLCCP Stapled Group by stapling together the KLCCP shares and the units (in the REITS). The resultant stapled securities will be quoted and traded as one security on the Main Market of Bursa Securities and will not be able to be traded separately.
“Upon completion of the exercise, it would create a group owning property assets in excess of RM15 billion, making it more than three times as large as the next listed REIT. It would be a significant enhancement in pay-out to shareholders as KLCCP Stapled Group intends to pay out at least 90% of its distributable income,” the company said.
However, as part of the exercise, KLCCP would first acquire the remaining 49.5% stake in Midciti Resources Sdn Bhd, the company which owns Petronas Twin Towers, from KLCC Holdings Sdn Bhd (KLCCH) for RM2.86 billion. KLCCH is owned by Petroliam Nasional Bhd (Petronas).
The acquisition will be funded by the issuance of KLCCP shares at RM5.60 each. Following the acquisition, Petronas’ interest in KLCCP would increase to 75.5% from the current 52.6%.
However, KLCCP intends to make an application to Bursa Malaysia on compliance with the public free float requirement.
The valuation of the three properties to be transferred into the REIT at a total of RM8.76 billion includes liabilities of RM1.6 billion.
After the transfer, among the properties that remain in KLCCP are Menara Dayabumi, Mandarin Oriental Hotel and Suria KLCC.
KLCCP will still hold the first right of refusal to develop other parcels of land within the KLCC area owned by KLCCH.
The company said that upon completion of the exercise, the shareholders of KLCCP would be able to enjoy the earnings from the REIT and the remaining properties in KLCCP.
“The earnings of the KLCCP Stapled Group are expected to improve due to the additional profit contribution arising from the proposed Midciti acquisition and KLCC REIT’s exemption to income tax pursuant to its structure,” the company said.
The advantage of a REIT is that it only pays an income tax of 15% if it distributes 90% of its income.
“It will create a unique vehicle with stable cash flows whilst enjoying growth potential from existing developments and undeveloped property assets of KLCCP Stapled Group as well as a right of first refusal to be granted by KLCCH to KLCCP Stapled Group over its property assets,” said the company.
Merchant bankers said stapled security is a new asset class for the investing public in Malaysia but not for other capital markets.
“It is common in countries such as Australia where there are more than 40 such listings. There is one listing in Singapore and another in Hong Kong. Only in Malaysia there has not been any application so far until KLCCP,” said the banker.
The banker also said the Securities Commission (SC) is flexible in the listing of stapled securities as long as the underlying assets are related.
“It must have some nexus. It cannot be two different asset classes operating in two completely different industries. Once stapled, it cannot be broken up,” said the banker.
“In the case of KLCCP, the SC allowed the proposal because it’s a more efficient form of rewarding shareholders. They can take advantage of the favourable tax structure for a REIT and still keep all the assets together. It cannot be realised under the previous structure,” said the banker.
In a related development, KLCCP announced a net profit of RM1.5 billion for the three months ended Sept 30, thanks to a revaluation surplus of its properties to the tune of RM1.4 billion.
Revenue for the period was RM282.88 million compared with RM244.83 million in the corresponding period last year where it registered a net profit of RM113.59 million.
According to the company, revenue from the property investment division was up by RM21.7 million in the quarter to RM125.5 million due to recognition of rental from Menara Petronas 3 and upward rent revision at Menara Dayabumi and Menara ExxonMobil.
The contribution from the retail division was up RM14.1 million to RM94.3 million in the quarter.
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