Suria KLCC, a 60%-owned subsidiary of KLCCP Stapled Group (KLCC) will redevelop 12% of its NLA at Suria KLCC Mall (formerly leased to Parkson) for RM50m. The RM50m redevelopment plan is expected to be completed in phases by 4Q19 and 2Q20. The 124,435sf space will be leased to a mix of F&B, cosmetics, fashion and luxury brands. We are positive on the redevelopment plan; upon completion, it should lift KLCC’s PATAMI by 2-3% and attract more footfall. We maintain our HOLD rating on KLCC with an unchanged TP of RM7.55.

Suria KLCC to Redevelop Parkson’s Lot for RM50m

Malaysia Reserve reported that Suria KLCC S/B, a 60%-owned subsidiary of KLCC, is adding over 50 mixed retailers at its former anchor tenant Parkson’s spot under a RM50m redevelopment project to generate higher rental yields and uplift the vibrancy of the shopping mall. CEO and ED Andrew Brien said the first phase of the project is expected to be completed by 4Q19, and a full completion is set in 2Q20. He said related approvals and tendering processes have been completed and leasing is already ahead of time.

The space to be leased to F&B, cosmetics, fashion and luxury brands

The three-floors that Parkson used to leased was equivalent to 124,435 sf, or 12% of Suria KLCC’s NLA. Under the redevelopment plan, Brien said the former ground floor area will be filled with new al-fresco cafes, cosmetics and some luxury brands. On the first floor, the new tenants will be both local and international emerging brands, and some areas will be curated to house pop-up stores of entrepreneurial brands. The second floor, which house the Signatures Food Court, will be entirely redeveloped and extended to have up to 30 F&B outlets from the current 25 premises.

We are positive on the plan, expect minor profit uplift, more footfall

We are positive on the redevelopment plan: (i) the plan generates high ROI and is expected to lift Suria KLCC’s gross rental. Parkson has reportedly contributed to about 2.4% of Suria KLCC’s total gross income per annum. We estimate its gross rental at RM7-8 psf per month, is significantly below Suria KLCC’s average rental of RM30-32 psf per month. Nonetheless, the overall uplift to KLCC’s PATAMI is not expected to be significant due its large asset base, taxation and 60%-ownership in Suria KLCC. Upon completion, we expect the redevelopment to lift KLCC’s PATAMI by 2-3%; and (ii) we expect the new tenants to attract more footfall to Suria KLCC, compared to Parkson.

Source: Affin Hwang Research - 27 Mar 2019