KUCHING: KLCC Stapled Group’s (KLCC) future development plans are set to pave way to the group’s long-term growth although it still lacked near-term growth catalysts.
RHB Research Institute (RHB Research) analyst Alia Arwina in a research report highlighted that the major redevelopment of Kompleks Dayabumi’s is well underway, with Phase 2 expected to complete in October.
In addition, the group could also be looking to build an office block on its prime Lot D1 land.
“The management of KLCC told us that the Kompleks Dayabumi redevelopment project is well underway. Phase 2 of KDR, which includes works on the common area and a new connection to the nearby light rail transit (LRT) station, is expected to be completed by October.
“Phase 3, which will see the demolishment of City Point shopping centre to make way for a 500-room hotel as well as a 60-storey office tower with retail components, is currently in the planning stage,” the analyst explained.
Acknowledging the softening demand of office space given the current supply gut, the group had indicated that Phase 3 is expected to kick-off only when KLCC secures an anchor tenant for the office tower, she noted, adding that Phase 3 is estimated to take three to five years to complete.
“Management is confident of Kompleks Dayabumi’s long-term potential, given its connectivity to the Pasar Seni LRT station and future mass rapid transit (MRT) link,” Alia said.
Apart from the redevelopment of Kompleks Dayabumi, KLCC is also looking to develop its prime Lot D1 land.
“Management is planning to construct an office block on the site as it believes that there is still a market for premium, grade-A offices.
“Ground works on Lot D1 are expected to start in the second half of 2014 (2H14), provided an anchor tenant is secured by then,” the analyst explained.
In addition, she said that the company is likely to undergo asset injections to its Real Estate Investment Trust (REIT) to stimulate inorganic growth, as it has the right of first refusal on some of KLCC Property Holdings’ assets. Third-party acquisitions could also be on the cards if a suitable asset is found.
Nevertheless, the research team of Kenanga Investment Bank Bhd (Kenanga Research) outlined that the group lacked near-term catalysts as there was no new development on either ‘REIT-ing’ Suria KLCC or potential asset acquisitions.
“During the REIT-ing of its office assets, there were expectations that Suria KLCC may be REIT-ed although this expectation has since abated,” the research team said.
“We believe the main issue lies with the steep asking price for the 40 per cent minority stake in Suria KLCC and we take the stance that it is unlikely to happen this year,” it opined.
As for the group’s asset acquisition, Kenanga Research outlined that the asset acquisition environment is not ideal at the moment as cap rates are still at a record-low, that is tougher to get yield accretive acquisition, which is an industry phenomenon as experienced by other MREITs as well.
Currently, the research team noted that the company is positioned for new acquisitions and developments given its current low gearing (based on asset) of 0.16x or net gearing of 0.10-fold.