Highlights/ Comment

• We attended a property tour hosted by head of investor relations Ms Bindu Menon. We visited Menara ExxonMobil and Menara 3 and key takeaways are as follows: -
• Menara ExxonMobil…

29-storey office building including four levels of elevated car park together with three levels of basement car park.

Completed in 1996, Menara E xxonMobil is wholly occupied as headquarter of Exxon Mobil Malaysia.

It was designed with tropical park setting to match with the design of KLCC.

Rental base d on fixed agreement of RM8.50 per sq ft for 395,851.20 sq ft of net lettable area.

The leasing period will expire on 31 January 2015 and we gathered that it will be renew ed based on triple net lease agreement.

Occupancy rate approximately 100%.

• Menara 3 Petronas...
  • 59-storey tower with a height of 267 meters and is built on a 1.06 acres site.
  • It has a gross built -up area of approximately 1.5m sq ft encompasses 6 floors of retail podium which is seamlessly connected to Suria KLCC.
  • Amongst the tenants occupying the 812,806 sq ft office tower are Petronas (occupy 25-storey), Microsoft, Bloomberg, Sona Petroleum and few others.
  • Refurbishment of Menara Day abumi Phase 3 is on track to begin in 2015 and still has not secured tenants for Lot D1.

Risks

• Potential holding company discount for the stapled security .
• High portfolio concentration on office segment.
• Competition from upcoming new iconic office building within Kuala Lumpur Central Business District.

Forecasts

• Unchanged.

Rating

HOLD , TP: RM6.49

Positives

• (1) High occupancy rates (>90%), consistentlystrong human traffic and desirable tenant profile due to prestigious and desirable KLCC address; and (2) Stability of rental yield and scope for capital appreciation.

Negatives

• Lack of near-term catalyst(s).

Valuation

We maintain TP of RM6.49 and HOLD recommendation on the stock.

• Targeted yield remains at 5.3% based on historical average yield spread of KLCCSS and 7-year MGS.

Source: Hong Leong Investment Bank Research - 15 Dec 2014