Wednesday, September 8, 2010

REITs: Expanding portfolios

Locally listed real estate investment trusts (REITs) appear to be on an expansionary path with quite a few announcing new asset acquisitions, so far this year. This is positive for the sector in terms of attracting more investment funds on the back of a larger asset base and improved liquidity.

Malaysian REITs in general still offer fairly good yields, estimated to range from 6% to 8.4%, with a simple average of about 7.5%.

Enlarging asset base

Among the latest to announce new acquisitions is Amanah Raya REIT (ARREIT). The trust has proposed to buy three properties from PKNS for a total of RM270 million. The properties would then be leased back to the latter under a 12-year agreement, thus ensuring full occupancy for the duration.

The purchase will be partially financed by the issuance of some 122.7 million new trust units, priced at 88 sen per unit. Total units in circulation will increase from the existing 573.2 million to 695.9 million.

This latest proposal is the trust’s second acquisition this year. Earlier in May, ARREIT completed the purchase of two properties — Selayang Mall and Dana 13 — worth a collective RM227 million.

Upon completion of this latest proposed acquisition, total assets will rise to RM1.27 billion from the current RM995.8 million. Currently, its portfolio consists of 15 properties in the hospitality, higher education, commercial and industrial segments.

Meanwhile, Axis-REIT is also aiming to boost its asset base over the RM1 billion mark by the end of this year. The trust has already completed the acquisition of two logistic warehouses in Seberang Prai for RM26.5 million in 1Q10 and is currently in the midst of finalising the purchase of four other properties worth RM240 million.

Upon completion, targeted by October 2010, Axis-REIT’s asset base will reach RM1.2 billion. The trust is further evaluating potential acquisitions valued at some RM190 million including logistic and retail warehouses in Johor and an office building in Cyberjaya.

To part-finance the new purchases, Axis-REIT will be issuing some 68.8 million new units priced at RM1.97 each, enlarging its total units in circulation to 375.9 million.

Elsewhere, newly-listed CMMT is evaluating the viability of acquiring a nine-storey retail extension block adjoining the Gurney Plaza, valued at some RM215 million. The acquisition would add 135,000 square feet of net lettable area to CMMT’s existing portfolio.

CMMT owns three shopping malls — the Gurney Plaza in Penang, 205 strata parcels within Sungei Wang Plaza (which is about 61.9% of the mall’s retail floor area plus car park) and The Mines in Selangor — valued at a collective RM2.13 billion with net lettable area totalling almost 1.88 million square feet.

AmFIRST REIT too has proposed to acquire a retail lot in The Summit Subang USJ — with net lettable area of 37,372 square feet for RM6.8 million — and the FBSM Plaza for RM51.5 million.

The trust already owns the Summit Hotel, about 70% of the retail space in the mall and 12 out of 13 office floors — with net lettable area totalling nearly one million square feet. Its existing portfolio of six properties is valued at just over RM1 billion.

Quill: Trading below NAV

Quill Capita Trust is among the cheaper valued REITs, in terms of price to net asset value — currently trading at only 0.8 times its NAV of RM1.22 as at June 30, 2010.

Thus, the trust could offer investors potential capital gains, on top of steady yields. We estimate income distribution to total about 7.9 sen per unit for the current year, which would give investors a yield of 7.9% at the prevailing unit price.

The trust, which invests primarily in commercial properties, was listed back in January 2007. From the initial four Quill buildings in Cyberjaya, its portfolio has expanded to 10 properties worth over RM788 million.

Its properties are located in Cyberjaya, Kuala Lumpur, Selangor and Penang with net lettable area under management totalling more than 1.288 million square feet. As for future expansion, Quill is believed to be currently looking at two properties within the Klang Valley worth some RM400 million.

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