KLCC Property – A Stapled REIT, the First & a Goliath in the making

KLCC Property counter surged to all time high today. Even if you are not a REIT investor, you would have noticed this news on KLCC Property. And even if you are not a stock market investor, you know what is KLCC (the major stakeholder of Suria KLCC and Petronas Twin Tower). For the uninitiated, KLCC Property as a company is principally involved in investment holding, property investment and the provision of management services.

So what is a Stapled REIT? I also just learned of this term. Even analysts are surprised by this move, as in, we know the eventual REIT-ing of KLCC Property, but a stapled REIT instead of a conventional REIT? You betcha. Basically, you imagine a stapler (stationary) you use to clip two sheets of paper together.

stapled reit

That means, KLCC Property will undergo restructuring as a new alternative asset class, providing comparable yield (vs large cap M-REIT like IGBREIT) and defensively resilient earnings backed by Petronas. The move will combine KLCC Property shares to KLCC REIT which will list under one single entity in KLSE, tentatively known as KLCCSG (KLCC Stapled Group). A 2 in 1 structure which consists of retail, office and hotel properties, if you may.

KLCC Property REIT

Source: Maybank KE

Here are some salient points:

  1. Three mature assets form its portfolio – Petronas Twin Towers, Menara 3 Petronas and Menara ExxonMobil
  2. Restructuring exercise to complete by Q2 2013
  3. Killing 2 birds with one stone – KLCC Property move is to unlock the value of its mature properties asset without losing control over its ownership & franchise.
  4. Will be the largest M-REIT in market cap with property assets of RM RM 14.7b, 3 times the market cap of current largest REIT, IGBREIT
  5. With the REIT element in it, it will take advantage of the favorable 90 percent income distribution guideline for REIT to enjoy corporate tax holiday.
  6. Maybank IB Research thinks the current stock price of KLCC Property is undervalued compared to its forecasted post-restructuring NAV of RM 6.14 (that explained the price surge as the time of this writing). In fact it has been trading all time high since a year ago when news was out on the REIT-ing of KLCC Property earlier 2012
  7. Post restructuring, gearing ratio of 15.2% is expected. Super LOW! Which is good because there is ample of room to fund future asset acquisitions. (Stapled REIT may also need to adhere to the 50% gearing ratio limit by SC)
  8. Post exercise, the KLCCSG units will be distributed to KLCC Property shareholders and stapled together with KLCCP shares on the basis of 1:1 ratio.
  9. Earnings growth has been impressive Y.O.Y due to contribution from Menara 3 Petronas, rental increase at Menara Exxonmobil and space reconfiguration+rental increase at Suria KLCC

Fundamentals are solid, it is definitely in my radar now.

So would I buy KLCCP now? Would you join the herd and buy now? After all, we are talking about owning a piece of our iconic Twin Towers.

Just recall this from Buffett –

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

Today, it is up like over 3 percent. People are definitely greedy.

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