AmFIRST REIT looks to purchase two more properties

KUALA LUMPUR: AmFIRST Real Estate Investment Trust (AmFIRST REIT) is exploring the purchase of two medium-sized properties, with a value of up to RM250 million collectively, said Panneer Selvam, head of investment at Am ARA REIT Managers Sdn Bhd, the manager of AmFIRST REIT.

“At the moment we are looking at two deals, two [separate] properties worth RM200 million for one and RM50 million for the other, which are ... meeting our criteria. But it’s a long exercise as they have to pass through the due diligence exercise,” Panneer told the press after AmFIRST REIT’s annual general meeting yesterday.

Panneer said the property type is a mixed development, entailing a mall plus office. One is in the Klang Valley, and one is outside of the Klang Valley.”

As the deals are only in the preliminary stage, he said, there is only a 50:50 chance for them to go through. “At this moment the board hasn’t looked at it, but at the management level we feel that it’s doable. We intend to bring them to the board in the next quarter.”

Panneer emphasised that any property acquisitions would first have to meet AmFIRST REIT’s benchmarks in terms of yields — noting that the REIT’s properties currently yield about 6.1% based on its latest audited accounts.

“If it is not accretive, it must justify the capital upside, or potential rental revision immediately upon acquisition,” he said.

AmFIRST REIT has nine investment properties in its portfolio valued at RM1.31 billion. They include Bangunan AmBANK Group and Menara AmBANK in the capital and Menara AmFIRST in Petaling Jaya, Selangor. The last acquisition made by the REIT was Jaya 99 or Kompleks Tun Sri Lanang in Melaka in 2012.

Based on its annual report for the financial year ended March 31 (FY14), AmFIRST REIT’s gearing stood at RM429.1 million or 32.96% of its total asset value of RM1.31 billion. It has the capacity for additional debt financing as REITs can borrow up to 50% of total asset value stipulated under the guidelines.

Acting chief executive officer of Am ARA REIT Zuhairy Md Isa noted that AmFIRST REIT is currently trading at a discount to its net asset value per unit [at RM1.20]. The REIT closed at 95 sen yesterday, giving it a market capitalisation of RM652 million.

Zuhairy acknowledged that the glut in office space has directly impacted AmFIRST REIT, from the declining office market occupancy rate in the Klang Valley, which is expected to drop to 78.6% this year and 75.95% next year from 80% currently. Commercial office makes up 68.2% of AmFIRST REIT’s portfolio.

Nonetheless, he noted that under these tough market conditions, the REIT managed to have a rental revision of 3% to 5%, and believes that once the asset enhancement initiatives of its properties are completed, the REIT will be in a better position.

“We managed to register an above market average in terms of occupancy rates. Our occupancy level currently is about 88%, and I’d say we are going to improve on that. This is one of our action plans for the current financial year,” he said.

Zuhairy concluded that the focus for AmFIRST REIT in the years to come would be in active asset management, to make its existing properties more appealing.

This article first appeared in The Edge Financial Daily, on June 24, 2014.