AmFirst REIT may buy shopping malls to grow asset base

PETALING JAYA: AmFirst Real Estate Investment Trust (AmFirst REIT), one of two Malaysian REIT to propose a rights issue late last year, is looking to grow its asset base by 20% over the next 15 months and may do this by acquiring Malaysian shopping malls assets managed by its Singapore-listed parent.

Lim Yoon Peng, chief executive officer of Am ARA REIT Managers Sdn Bhd (Am ARA), said while AmFirst REIT does not have legal priority over ARA Asset Management Ltd’s (ARA
Asset) properties here, AmFirst REIT is well-positioned to take advantage of any opportunities.

“Hypermarkets like Tesco, Giant and Jusco are considered commercial properties. There is no first right of refusal but I am first in the queue,” Lim told The Edge Financial Daily in a recent interview, adding that a deal could happen when ARA Asset decides to make an asset disposal in line with its exit strategy.

Singapore-listed ARA Asset, which owns 30% of AmFirst’s REIT manager Am ARA, is an affiliate of tycoon Li Ka-shing’s Cheung Kong Group. Malaysia’s AmInvestment Group Bhd owns 70% of Am ARA.

The malls mentioned could come from ARA Asset’s ARA Asia-Dragon Fund (ADF). “The fund usually keeps the properties for a period of between three and five years before
disposing them of for a profit. ADF will offer to sell these properties to third-party buyers or AmFirst (REIT),” Lim said. “I foresee that ADF may dispose of some properties within two to three years.”

Reportedly in talks to acquire up to 10 malls throughout Malaysia, ARA Asset’s portfolio here includes the 1 Mont’Kiara Mall and AEON Bandaraya Melaka shopping centre in Malacca. ARA Asset also owns the Klang Parade, Seremban Parade and Ipoh Parade malls.

The acquisitions were undertaken via the ADF, a private real estate scheme investing across Singapore, Hong Kong, China and Malaysia. According to ARA Asset’s latest annual report, the ADF has a committed capital of US$1.13 billion (RM3.55 billion).

Recent news reports, quoting unnamed sources, indicated that the ADF is acquiring the Citta Strip Mall in Ara Damansara for about RM245 million from Germany-based real estate fund SEB Asset Management and property developer Puncakdana Group.

“I believe the ADF is buying Citta to incubate the asset before disposing of the property within the next three to five years,” Lim said when asked on the news reports.

AmFirst REIT’s plans to acquire more properties coincides with the REIT’s plans to venture outside its comfort zone in the Klang Valley, Lim said.

Already, AmFirst REIT is eyeing commercial properties such as Grade A office buildings in Penang and Malacca, as it seeks to grow its real estate asset base by 20% before the end of its FY ending March 31, 2013.

“Both states are coming up and the economy is doing well. Valuations and asset purchases are driven by market rent,” Lim said.

The office buildings would form a crucial element in the manufacturing enclaves in both states, which have benefited from foreign direct investments, he added.

Lim also said AmFirst REIT’s potential acquisitions will still be centred on commercial properties and the group had no intention to venture into industrial assets.

AmFirst REIT’s asset base stood at RM1.16 billion as at Nov 30, 2011, according to data from its presentation slides.

Its portfolio of properties includes Bangunan AmBank Group, AmBank Group Leadership Centre, Menara AmFirst, Menara AmBank, Kelana Brem Towers and The Summit Subang USJ. In Nov 2011, AmFirst REIT completed the acquisition of two commercial towers, namely Prima 9 and Prima 10 in Cyberjaya.

These eight properties, with a collective net lettable area of 2.33 million sq ft, have occupancy rates of between 66% and 100%, according to AmFirst REIT.

The acquisition of the Prima 9 and Prima 10 was first announced in June prior to the announcement of AmFirst REIT’s renounceable rights issue in August.

AmFirst REIT had proposed to undertake the rights issue on the basis of three new rights units for every five existing units in the company.

The property trust had also planned to expand its approved fund size from 429 million units to 686.4 million units.

Based on an indicative 85 sen per rights unit, the proposed rights issue, to be finalised by March 2012, is expected to raise RM218.79 million. Of that, RM214.74 million will go towards the repayment of the company’s debt.

Following the completion of the Cyberjaya acquisition in November 2011, AmFirst REIT’s gearing ratio rose to 46.5%, just a shade below the 50% debt-to-total asset ceiling allowed by regulators.

Upon repayment of borrowings from the proceeds of the cash call, AmFirst REIT’s gearing will decline to some 28%, the company said, thus providing the property trust room to gear up to pursue other real estate acquisitions. Its gearing ratio will also decline with a larger asset base.

In a statement dated Nov 30, announcing the completion of its first investment in Cyberjaya, Lim said its proposed rights issue “will be a catalyst to drive AmFirst REIT’s asset acquisition strategy”.

While unit holders of REITs in Singapore had reacted negatively to rights issues, Lim seemed confident AmFirst REIT unit holders would not take the exercise badly.

“I don’t think AmFirst (REIT) unitholders will react negatively to the [proposed rights] exercise. This is because after we acquired Prima 9 and Prima 10 in Cyberjaya, our gearing rose to nearly 47%.

If we don’t do fresh capital raising, we cannot grow AmFirst (REIT) further,” Lim said, pointing out that the cash call would strengthen the REIT’s balance sheet, allowing further room for growth. “If there is negative market perception on AmFirst REIT’s growth prospects, our unit price could be affected.”

Whatever the case, there is a need for AmFirst REIT to improve earnings. For the 1H ended Sept 30, net profit fell 8% to RM18.95 million from RM20.59 million a year earlier as revenue declined 2% to RM46.18 million.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Rights issues by REITs a tough sell?

KUALA LUMPUR: It remains to see whether investors will warm up to recent proposals by Malaysian real estate investment trusts (REITs) to embark on rights issues for fundraising.

This comes as Hektar REIT and AmFirst REIT separately proposed rights issues in recent months. The former is doing so to fund new asset acquisition while the latter is seeking to reduce its bank borrowings. CapitaMalls Malaysia Trust (CMT) also recently told The Edge Financial Daily that it is considering a rights issue to raise fresh capital.

Analysts and market observers said it is generally undesirable for REITs to embark on rights issues as investors expect dividends from REITs instead of having to plough in more capital.

“Effectively, they are asking investors to spend more on their stock in these uncertain market conditions,” said a property analyst.

However, judging from the price performance of both Hektar REIT and AmFirst REIT, investors have not reacted negatively to the news. This, surprisingly, is in contrast to investors’ harsh treatment of Singapore-listed REITs that embarked on rights issues.

According to analysts, the reason why Malaysian REITs are now turning to rights issues to raise funds, instead of the usual way of borrowing or unit placement, could be because their gearing is already near the 50% threshold (of total asset value) permitted for a REIT to borrow, or that the capital they seek to raise is larger than what can be achieved with a placement exercise.

In Hektar REIT’s case, its gearing ratio is 43.4%, just below the 50% limit, based on its total debt of RM347 million and total assets of RM799.47 million as at Sept 30. AmFirst’s REIT’s gearing as at Sept 30 was 39.8% based on total borrowings of RM419.6 million and total assets of RM1.053 billion.

On Dec 8, Hektar REIT proposed a renounceable rights issue to raise gross proceeds of about RM98.4 million. Proceeds from the rights issue will be used to partially fund the acquisition of two shopping malls in Kedah for RM181 million cash.

Hektar REIT added that it would also obtain bank borrowings of up to RM87.1 million to purchase the assets. Note that it held cash and cash equivalents of RM21.3 million as at Sept 30.

The REIT has yet to finalise the actual number of rights units and entitlement basis will be determined later based on the final issue price of the rights unit.
Hektar REIT added that it will procure a written irrevocable undertaking from its substantial unitholders to fully subscribe for their entitlements, failing which underwriting arrangements would be made.

AmFirst REIT’s proposed rights issue, set on a three-for-five basis, is expected to raise gross proceeds of about RM218.8 million, based on an illustrative issue price of 85 sen per unit. The proceeds are to be used to pare down borrowings.

CapitalMalls Malaysia Trust, which also manages The Mines shopping mall, recently said it is also considering a rights issue to raise fresh capital.

AmFirst said the rights unit issue price is expected to be fixed at a discount of no more than 20% to the theoretical ex-rights price of the unit. “The discount on the issue price of the rights unit is intended to reward unitholders for their continuous support of the fund,” AmFirst said.

Thus far, investors have not reacted negatively to the REITs proposal to conduct rights issues. The unit prices of both Hektar REIT and AmFirst REIT are still traded near their peaks.

“It could be because the unit prices are currently near historical highs, and more interestingly, at the current high prices they still offer rather good yields as well [Hektar REIT at 7.6% and AmFirst at 8.6% historical yield], so unitholders are happy,” said a market observer.

Other than that, he explained that there is still strong demand for REITS in times of market volatility, especially among institutional shareholders.
“Pavilion REIT has gained 13.6% since last week’s IPO to RM1, and the yield is now only 5.7%. So, the management of REITs thought maybe a rights issue is a good idea,” he said.

The scenario is different in Singapore.

K-REIT Asia, a unit of the Keppel Land group, saw its unit priced plunge 9.7% to S$0.857 sen on Oct 18 after it announced plans to raise S$976.3 million (RM2.4 billion) through a 17-for-20 rights issue. Most of the funds raised by the REIT will be used to buy a 87.5% stake in Ocean Financial Centre (OFC) from its parent Keppel Land Ltd.

It was reported that investors didn’t like the pricing for the OFC deal, and the fact that it was a related party deal. It wasn’t entirely because K-REIT Asia had proposed to acquire it via rights issue funding.

“At the end of the day, REIT managements have to justify why they have to do a rights issue to ask for more money from the unitholders. While institutional shareholders are okay with a rights issue, it could be a turn-off for minority shareholders,” said a market observer.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AmFIRST REIT acquires Cyberjaya properties

Am ARA REIT Managers Sdn Bhd, the manager of AmFIRST Real Estate Investment Trust, has completed its acquisition of Prima
9 and Prima 10 located in Cyberjaya for a cash consideration of RM133 million on Nov 30.

In a statement today, AmInvestment Bank Group said, this was AmFIRST REIT's first investment in Cyberjaya, capitalising on the economic growth and vibrancy of its commercial office segment to achieve wider geographical diversification
of current investment portfolios.

"Prior to the acquisition and as of Sept 30, AmFIRST REIT had six properties with a total net lettable area of 2,311,489 square feet.

"The new acquisition will boost the total investment portfolio to eight properties and add a further 211,496 square feet, representing an increase of nine per cent of the total net lettable area.

"The acquisition records a remarkable growth in the asset under management (AUM) of AmFIRST REIT by 13 per cent from RM1.028 billion as at Sept 30, to RM1.163 billion and the gearing ratio will increase to 46.5 per cent," the statement said.

It added that the two new properties are expected to contribute an additional distributable income of 0.68 sen per unit on an annual basis. -- Bernama



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.