Management to explore KLCCP REIT

KUALA LUMPUR: With Over RM13.3 billion of prime Kuala Lumpur real estate, KLCC Property Holdings Bhd (KLCCP) could be repackaging the assets under a real estate investment trust (REIT) structure.

KLCCP announced yesterday that its board had instructed management to explore a corporate structure of a REIT in order to optimise shareholder value.

“If KLCC Property injects its prime assets into a REIT, it will be the largest in Malaysia. There is no comparison for KLCC REIT, because there are no other assets like it out there. It would be a strategic move to list the KLCC-related properties as a REIT,” said an analyst with a local bank-backed research house.

The crown jewels of KLCCP are the Petronas Twin Towers and the Suria KLCC mall, which have a fair value of RM6.4 billion and RM3.74 billion respectively in its books. However, KLCCP only holds 50.5% and 60% stakes in the two properties, bringing its stake in the properties to RM5.48 billion.

The group’s total diluted holdings are worth RM8.02 billion. Combined, the group’s stakes in various properties in KL’s Golden Triangle alone are worth some RM7.6 billion based on valuations done in January 2011, excluding Menara Dayabumi.

The suggested KLCCP REIT would easily dwarf the existing REITs as well as the upcoming IGB REIT, which is expected to have a market capitalisation upwards of RM4.6 billion.

Pavilion REIT, Sunway REIT and Capitamalls Malaysia Trust have respective market capitalisations of RM3.36 billion, RM3.59 billion and RM2.82 billion.

KLCCP’s main shareholder, Petroliam Nasional Bhd (Petronas), which has a 52.29% stake in the group, is poised to reap a significant cash payout from the restructuring.

IGB Corp Bhd is expected to raise around RM770 million in cash from the injection of its Mid Valley Megamall and The Gardens Mall assets worth RM4.6 billion into IGB REIT.

“It is too early to speculate how much cash Petronas will extract from injecting its assets into the REIT. The cash raised could go towards funding the development of Lot D1, located opposite Mandarin Oriental and Phase 3 of DayaBumi,” noted the analyst.

He added that KLCCP’s shareholders definitely stand to benefit from the move, in the form of higher dividend payouts.

REITs have to pay out at least 90% of their earnings and in return, do not get taxed. KLCCP has a dividend yield of 4.88%.

Yesterday’s announcement lifted KLCCP’s share price by 11.66% to RM4.31. This still values the company at 0.62 times the value of its seven major properties in the city centre.

When KLCCP was listed in August 2004 at RM1.67 a share, it raised RM766 million. Independent valuations in 2003 valued KLCCP portfolio properties at around RM4.1 billion, which at the time did not yet include Menara 3 Petronas, which was completed some two years ago.

The IPO took place at roughly 0.41 times the value of KLCCP’s main properties at the time.