CEO’s Year in Review
This year the Group recorded commendable results reflecting the resilience of the Group’s business model and quality of its operating assets.
FY2012 is the fi rst full year following the adoption of the 31 December financial year end and covers a 12 month period from 1 January 2012 to 31 December 2012 as compared to the previous audited 9 month period of 1 April 2011 to 31 December 2011. In this review, for a more meaningful analysis, profit and loss items will be compared to the corresponding 12 month period of the previous year.
This financial year also saw the fi rst time adoption of the Malaysian Financial Reporting Standards (MFRS) which came into force on 1 January 2012. The adoption of the MFRSs did not have any significant financial impact to the Group except for MFRS 112: Income Taxes which resulted in the derecognition of prior years’ Deferred Tax Liability provisions on valuation gains previously reported in the financial statements prepared in accordance with the previous Financial Reporting Standards.
Statement of Comprehensive Income
For the fi nancial year ended 31 December 2012, the Group achieved revenue of RM1.18 billion compared to RM0.97 billion the year before. The growth in revenue by
RM203 million or 21% was contributed by all segments - in particular the offi ce segment with the fi rst full year impact from Menara 3 PETRONAS offi ce and renewal of the PETRONAS Twin Towers lease in October 2012.
The fi rst full year revenue generated from both the offi ce and retail segments of Menara 3 PETRONAS totaled RM119 million which amounted to more than 10% of the Group’s total revenue.
There was also a further enhancement to the market valuations of the investment properties which were supported by the strong future cash fl ows expected to be generated by these properties. This led to the recognition of a fair valuation gain of RM1.38 billion for these investment properties in the fi nancial year, which was in fair part largely contributed by Suria KLCC, Menara 3 PETRONAS and the PETRONAS Twin Towers.
The encouraging revenue growth and fair valuation gains coupled with the prudent management of costs steered the Group towards achieving a profi t attributable to the equity holders of RM1.46 billion - an increase of 50% over the previous year of RM0.97 billion. Excluding the impact of the investment property fair valuation gains, the Group’s profi t attributable to the equity holders grew by 40% from RM273 million in 2011 to RM382 million in 2012. The resultant Group’s Earnings per Share (EPS) excluding the fair valuation gains improved from 29.2 sen last year to 40.9 sen this fi nancial year.
Statement of Financial Position
The Group’s total assets as at 31 December 2012 stood at RM15.79 billion which reflectedan
increase of RM1.79 billion from the start of the year of RM14.0 billion. The growth in value by 13% was largely contributed by the fair valuation gains enjoyed by the investment properties.
There was a similar increase in the equity attributable to shareholders of the company where there was a growth of 18% from RM7.13 billion as at 31 December 2011 to close at RM8.43 billion at year end. This led to the improvement in net assets per share, excluding RCULS, from RM6.90 to RM8.29.
The Group secured long term triple net lease agreements for both the PETRONAS Twin Towers and Menara 3 PETRONAS offi ce for a period of 15 years, which was refl ected in the substantial growth in revenue by 25% from RM415.9 million in 2011 to RM521.4 million in 2012. Together with lower costs, this segment achieved a healthy increase of 34% in Profi t Before Tax (PBT) - a rise from RM335.0 million for the year 2011 to RM447.2 million in 2012.
Despite the high impending supply of offi ce space into the market in 2013, the impact to the Group will not be signifi cant for commercial properties as it is underpinned by these long term leases. In fact, the performance of this segment is expected to improve taking into account the full year impact of the PETRONAS Twin Towers lease which commenced in October 2012.Commercial/office properties continue to be the main contributor of revenue
and operating profit for the Group with a contribution of 44% and 56%
respectively. This is an increase from about 42% and 55% respectively last
fi nancial year stemming from the first full year contribution from Menara 3 PETRONAS office.
The Certifi cate of Completion and Compliance (CCC) for the Menara 3 PETRONAS retail podium was issued on 8 February 2011. As for the Menara 3 PETRONAS offi ce tower, the CCC was issued on 30 December 2011 with the fi rst tenants starting to occupy the offi ce on 17 January 2012. This signifi ed the full completion of Menara 3 PETRONAS, which was achieved within budget and on time. The offi cial opening of the sky lobby on the sixth fl oor was held on 9 July 2012. To add to the vibrancy of the building, Coffee Planet, a café catering mostly for the offi ce tenants and the latest and most iconic roof-top destination in Kuala Lumpur - Marini’s at 57- opened their doors for business.
On 18 October 2012, the PETRONAS Twin Towers was awarded the inaugural The Edge Malaysia Outstanding Project Award 2012, part of The Edge Property Excellent Awards 2012 for its iconic status and the way it has elevated Malaysia’s image in the eyes of the world.
The retail segment comprising Suria KLCC and retail podium of Menara 3 PETRONAS which forms the extension to Suria KLCC, registered yet another strong performance in 2012 and further strengthened its position as the premier shopping destination in Malaysia.
This segment achieved revenue of RM390.6 million, an increase of RM70.8 million or 22% from RM319.8 million last year which translates to a contribution of 33% to the overall Group revenue. PBT grew at a higher pace than revenue with an increase of 32% from RM224.5 million in 2011 to RM296.0 million in 2012. Suria KLCC has managed to maintain its customer footfalls of over 41 million while total sales turnover increased by 6.4% to over RM2 billion in the past 12 months.
The accomplishment of Suria KLCC is attributed to the continuous efforts to refresh the retail mix and offerings, as well as effective marketing initiatives and corporate social responsibility (CSR) programs.
The annual Suria KLCC CSR program, Purple Day, raised RM200,000 for the National Autism Society of Malaysia in its third year in 2012. It also received global recognition by achieving the Gold Award for Cause Related Marketing through the Purple Day campaign at the prestigious International Council of Shopping Centres (ICSC) Asia Pacifi c Shopping Centre Awards 2012.
The retail segment of the Group will continue to strive for another productive year in 2013 and management intends to raise the bar and further improve the retail scene in Kuala Lumpur.
Despite an over-supplied market, Mandarin Oriental Kuala Lumpur (MOKUL) delivered a solid revenue growth of 6.4% over the previous year,driven by higher occupancy at 66.5% and an increase in average room rates from RM586 to RM616 for the financial year ended 31 December 2012. This performance has retained MOKUL’s number one position in terms of market share amongst the city’s luxury hotels.
Owing to its quality of product offerings and unrivalled customer service, MOKUL continued with its award winning accomplishments by achieving 15 awards in 2012. MOKUL received the Bloomberg International Hotel Awards - Best Hotel in Malaysia, Destin Asian Reader’s Choice - Best Hotel, KL, Institutional Investor - Best Hotel in Malaysia & Top 100 in the World, Asia Pacific Property Awards - Best Hotel in Malaysia, Travel + Leisure’s Top 500 hotels in the World and ASEAN Green Hotel Award amongst others.
The performance of the luxury hotel sector will continue to be largely influenced by the recovery of the global economy and the infl ux of new competitors in the market. MOKUL remains focused on delivering superior service quality and products and with ongoing renovations taking place over the next few years, it will be well positioned to further strengthen its leading competitive position.
Asset Management & Services
Asset management continues to be integral to the operations and performance of the assets in the Group supporting the Group’s assets to the high standard of maintenance commensurate with the high value and iconic assets held by the Group.
For the fi nancial year ended 31 December 2012, the asset management segment together with general management services achieved revenue of RM105.8 million, an increase over the previous year of 18%. In addition, PBT of RM32.2 million was achieved for this segment reflecting a growth of 33% in 2012 driven by new facilities managed and higher traffi c volume from existing car park operations.
Renewable Energy Initiative
A solar photovoltaic energy system (a renewable energy system) was successfully installed on the rooftop of Suria KLCC mall. It is the largest single photovoltaic installation on a shopping mall building rooftop in Malaysia and South East Asia with a capacity to supply up to 5% equivalent power requirement of the mall. The project cost, which was sponsored by Mitsubishi, was approximately RM24.0 million. The project commenced in April 2011 and was completed in February 2012. The offi cial launch of PETRONAS’ fi rst Photovoltaic Project was held on 10 October 2012.
Green Building Initiative
The PETRONAS Twin Towers which has been the beacon in Malaysia’s building industry for the last 15 years was designed as a “High-tech” building when the “High-tech” Building movement was at its peak. It has since been superseded by the Green Building movement and now Sustainable Building movement with Malaysia introducing its own Green Building Index to measure a building owners’ commitment to reduce the world carbon footprint and building impact on human health, and environment during the building’s lifecycle.
The Twin Towers are now expected to embrace this sustainability drive to show its commitment to minimise its impact to its users, and environment in general. Thus, as owners, we have decided to adopt the Green Building Index rating under the Non-Residential Existing Building (NREB) category. Accordingly, upgrading work to certify the Towers as a certifi ed green building under the Malaysian Green Rating is being undertaken.
At the last Annual General Meeting on 28 June 2012, it was announced that the Group was exploring a corporate structure including a potential Real Estate Investment Trust (REIT). Subsequently, on 26 November 2012, a formal introduction to the proposed stapled structure was made and on 8 April 2013, an Extraordinary General Meeting was convened to seek approval from the shareholders to proceed with the proposed formation of stapled securities.
With the long term offi ce tenancies in place and supported by the retail segment, the Group’s performance is well positioned to strengthen over the long term. The hotel segment, however, may experience some diffi culties as market conditions are expected to remain challenging in the near term. Management will continue with its efforts to ensure effi cient cost management groupwide.
In addition, with the listing of the KLCC Stapled Group, the distribution to shareholders in 2013 and 2014 will increase in line with the commitment of the Company to distribute 95.0% of the Overall Distributable Income effective from the date of establishment of the KLCC Stapled Group.
The year ended 31 December 2012 saw the Group’s accomplishments in several major undertakings, starting with the completion of Menara 3 PETRONAS as planned and within budget, the renewal of the 15-year triple net lease for the PETRONAS Twin Towers, completion of a major mall reconfi guration in Suria KLCC and commencement of an exciting restructuring exercise for the shareholders. Certainly, it was a very busy and exciting 2012 which could not have been accomplished without the strong commitment of all.
I would like to record my sincere appreciation to the KLCCP Board members for their continuous support and guidance. My utmost gratitude and thanks to all staff of KLCCP Group for your contribution, sacrifi ces and commitment towards accomplishments of the Group’s objectives and goals.
Finally, my sincere appreciation also goes to all the shareholders and stakeholders for your strong support and trust in ourstewardship of the Group.