SPECULATION about a real estate investment trust (REIT) exercise by KLCC Property is not new. At its analyst briefing in April, management said that it was still undecided on this issue.
Coming up with a REIT will not enhance the value of the company but merely unlock the otherwise trapped value.
This is because its assets have constantly been revalued to market value, already reflected in the net tangible asset of RM5.55 per share, which is close to our revised net asset value estimate of RM5.32 per share.
We do not see a pressing need for a REIT exercise as the company is not in urgent need of cash. Its balance sheet is still solid as net gearing at end-March was 21%, low for a property investment company.
Its debt-to-investment properties ratio of 19% is also lower than most local REITs.
Another potential obstacle to a REIT is major shareholder Petroliam Nasional Bhd's (Petronas) 360.7 million redeemable convertible unsecured loan stocks (RCULS) which have yet to be converted into common shares.
All outstanding RCULS would be mandatorily converted into common shares 10 years from issue the date of (i.e. Aug 9, 2014).
We do not expect a REIT exercise to take place before the conversion of the RCULS as Petronas would miss out on the benefits of such a move.
As there is no confirmation of such a move or its timing, we retain our “underperform” rating.
Without confirmation of REIT plans, KLCC Property could be de-rated as investors switch to larger local REITs like CapitaMalls Malaysia Trust and Sunway REIT for higher yields.
By The Star
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