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Tuesday, July 20, 2010

KLCCP earnings to get a lift

The average rental rate of office space at Petronas Twin Towers is around RM9 per sq ft while Suria KLCC retail space is fetching average rental rates of around RM23 per sq ft.

Analysts see higher income streams on completion of retail podium, new office block next year

PETALING JAYA: KLCC Property Holdings Bhd (KLCCP) can look forward to higher income streams with the completion of the Lot C retail podium and a new office block next year despite the weaker performance of its hotel property business, analysts said.

Construction of the six-storey retail podium with 160,000 sq ft in net lettable area (NLA) and a 55-storey office block with NLA of 840,000 sq ft is under way.

The new retail podium is due for completion by the end of the year and should start contributing to the company’s earnings in financial year ending March 31, 2011 (FY11).

Suria KLCC has a net lettable space of 1 million sq ft now.

KLCCP’s 55-storey office tower is on track for completion in October 2011.

According to analysts’ estimates, Lot C could bring in RM147mil in rental income and contribute 21% to KLCCP’s FY13 earnings.

A senior analyst with a local brokerage said the KLCCP office building was without doubt the most prime office asset in the country.

“With Petronas as the master lessor for the office building, there is certainty in its rental income whether or not the office space is occupied. But there is also a downside in this arrangement as the company will miss out on the opportunity to review the rental rates should the market improve before the lease expires,” he told StarBiz.

The 15-year lease for Petronas Twin Towers which have a total NLA of 3.2 million sq ft was from August 1, 1997, while the lease for the 528,000 sq ft Menara Maxis was from June 1, 1998.

The lease tenure for the 380,000 sq ft-Menara Exxon Mobil was for 12 years until February 2012.

Hwang DBS Research analyst Yee Mei Hui said in a report yesterday that long term, locked-in rental income from blue-chip tenants would continue to sustain KLCCP’s future earnings.

The average rental rate of office space at Petronas Twin Towers is about RM9 per sq ft while that of Menara Exxon Mobil and Menara Maxis is RM7.50 per sq ft.

Suria KLCC retail space is fetching average rental rates of around RM23 per sq ft.

Yee said for FY10, the retail turnover at Suria KLCC shopping centre had returned to the pre-crisis level of RM2bil, while the number of annual footholds or visitors to the mall was 42 million.

During the period, KLCCP registered a 21% increase in net profit after minority interests of RM648mil while revenue grew 2% to RM881mil.

The improved results wermainly attributable to a 3% hike in office rental income and 8% increase in income from retail space.

She said the higher rental income from KLCCP’s office and retail segments would help mitigate its weaker hotel operations.

Income from Mandarin Oriental fell 13% as a result of a drop in the hotel’s occupancy rate to 55% in FY10 from an occupancy of 65% in FY09.

This was despite the average room rate holding stable at RM636. Yee said rental rates for the new retail space should be comparable with Suria KLCC at around RM35 per sq ft (ex-anchor tenants), adding that its occupancy rate could reach 80% in its first year of operation.

“KLCCP’s net gearing has improved to 27%, equivalent to a net debt of RM1.45bil in FY10 from a high of 130% in FY05. The significantly improved net gearing provides room for more borrowings for future expansion.

“Given the full repayment of Petronas Twin Towers’ private debt securities by 2012, the company’s net gearing ratio is expected to remain at a healthy level despite the loan drawdown for Lot C,” she pointed out.

By The Star

Axis REIT Q2 profit soars as property value jumps

AXIS Real Estate Investment Trust says its second quarter net profit almost doubled due to the higher value of its properties.

Axis REIT is bullish on its performance for the rest of the year.

Its net profit for the quarter to June 30 2010 was RM21.9 million, up from RM12.5 million in the same quarter a year earlier.

Revenue went up 21 per cent to RM21 million due to higher gross rental income.
The higher net profit was largely due to the change in its properties' fair value. The value of its assets rose by some RM9 million in the quarter, compared with RM2 million a year ago.

Excluding this unrealised value, its pre-tax profit increased 15 per cent to RM12.1 million.

Axis REIT plans to pay an income distribution of 4 sen a unit for the second quarter, which is 97 per cent of its realised pre-tax profit.

For the first six months, Axis REIT made a net profit of RM36.1 million, up from RM23 million in the same period last year. Revenue rose 18 per cent to RM40.9 million.

"The (REIT) manager is optimistic that in view of the current satisfactory performance of Axis-REIT's existing investment portfolio and its growth strategy to actively pursue quality acquisitions, it will be able to maintain its current performance for the coming quarter and the rest of the financial year," it said in a statement to Bursa Malaysia yesterday.

Axis REIT has leased out all of the space at Quattro West, its property in Petaling Jaya, Selangor.

It bought the building for RM39.8 million in 2007 and budgeted RM7 million for its makeover.

Axis REIT's properties are now worth RM928 million on its books at the end of June.

Its manager, AXIS REIT Managers Bhd, has targeted to manage RM1 billion worth of assets by the year-end.

It plans to buy five properties valued at about RM180 million in 2010.

In January, it said it was assessing two new warehouses in Port of Tanjung Pelepas in Johor, a factory or a warehouse in Puchong, Selangor, and an office building in Cyberjaya.

By Business Times