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KLCC Property Holdings Bhd
(Jan 27, RM5.66)
Maintain hold at RM5.66 with a target price of RM6.26: KLCC Property Holdings (KLCCP) recently hosted its corporate day presentation and revealed that the upgrading of Kompleks Dayabumi is almost completed. In terms of growth, the company is in the planning stage of two other developments — Phase 3 development of Kompleks Dayabumi, and Lot D1 located near the KL City Centre. Management also highlighted the impact of the rise in electricity charges and the upcoming rise in property assessment charges to the company.
Currently, the growing worry about KLCC stapled group (KLCCSS) is the potential rise in costs coming from the increase in property assessment hikes and increasing electricity charges that could impact the company. However, we understand that based on a triple net lease system, all incremental expenses would be passed on immediately to the tenants of the building. Currently, the Petronas Twin Towers, which constitute the bulk of the asset value, are tenanted on a triple net lease basis. In terms of electricity tariff hikes, we understand that the rise in costs would be fully passed on to the tenants via an increase in service charges. Management guided that for the Suria KLCC shopping mall, the costs have already been passed on. We understand that the upgrading of Kompleks Dayabumi for Phase 2 will be completed in the first quarter (1Q) of this year. The redevelopment involves the refurbishment of the plaza and extending a walkway towards the LRT station nearby. We understand that these asset enhancement initiatives have contributed to an increase in rental rates at Kompleks Dayabumi. Phase 3 of the upgrade involves the construction of a hotel and a 60-storey office tower offering a net lettable asset (NLA) of about one million sq ft. We understand that the company is still in talks to seek an anchor tenant for the office tower. The company expects to rope in an anchor tenant soon and hopes to begin construction on the building by the first half of 2015.
Rental rates at Menara ExxonMobil are expected to be revised this year. In 2009, Menara ExxonMobil was leased at a rate of about RM7.40 psf for a period of five years. We understand that the lease expires on Feb 14. Management has guided that the lease will be renewed at a monthly average rental rate of about RM8.50 psf for a period of three years.
Maintain “hold” with a target price of RM6.26. Our target price takes into account an increase in rental assumption for Menara ExxonMobil. It is derived from benchmarking the REIT division (RM4.90 per share) at a yield of 5.5% and applying a 40% discount to the realisable net asset value (of RM1.34 per share) for the property division. — UOB Kayhian, Jan 27
This article first appeared in The Edge Financial Daily, on January 28, 2014.
