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Boustead's REIT potential

KUALA LUMPUR: Could Boustead Holdings Bhd be considering a real estate investment trust (REIT) soon?

With The Curve NX and the Royale Bintang Damansara hotel slated for completion in the burgeoning Mutiara Damansara commercial centre in Petaling Jaya later this year, Boustead's property portfolio in the prime area may be reaching a tipping point.

At the same time, its Klang Valley land bank, particularly in Mutiara Damansara, is diminishing.

Analysts said a potential REIT exercise would help Boustead unlock the substantial value of its investment assets and, at the same time, raise funds for replenishinh its land bank.

Furthermore, the conglomerate's controlling shareholder, Lembaga Tabung Angkatan Tentera (LTAT), is widely rumoured to be close to clinching two major land privatisation deals in prime areas of Kuala Lumpur — 60 acres in Jalan Cochrane and the 245-acre Batu Cantonment army base on Jalan Ipoh.

As LTAT's flagship vehicle, analysts said they expect Boustead to play a role in acquiring or developing these two plots of land.

Analysts see the possible land acquisition and Boustead's own undemanding valuations as potential re-rating catalysts for one of Malaysia's oldest conglomerates.

Long viewed as unexciting, asset-rich Boustead is transforming itself into a dynamic conglomerate with rising profitability and dividends. It offers wide-ranging exposure to many facets of the Malaysian economy — including finance, plantations, and property — at a reasonable price, said an analyst, noting that the stock is under-researched.  

For FY10 ended Dec 31, the company saw net profit surge 57.3% to RM537.5 million, with earnings per share (EPS) of 57.5 sen. At last Friday's closing price of RM5.38, the stock is trading at a historical price-to-earnings ratio (PER) of 9.4 times, and a forward PER of 8.8 times for this year based on consensus forecast EPS of 61.3 sen.

With net assets per share of RM4.50 as at Dec 31, its price-to-book ratio of 1.2 times is also undemanding, said the analyst, adding that its underlying property assets have not been revalued for a long time and its stake in banking group Affin Holdings Bhd has appreciated.    

Boustead is also shaping up to be a dividend-yielding stock, with dividends of 39 sen declared so far for last year, up from 27.5 sen in 2009. This translates to a dividend yield of 7.2%. The company had in February announced a dividend payout policy of a minimum of 70% of net profit starting this year. Based on consensus EPS forecast of 61.3 sen, this implies potential dividends of 42.9 sen, or a generous 8% yield.      

Boustead's large portfolio of property that includes shopping malls, office complexes and hotels in downtown Kuala Lumpur, Mutiara Damansara, Seremban, Negri Sembilan, and Penang, is rapidly gaining prominence.

After seven years of operation, its flagship The Curve mall now has an impressive tenant mix coupled with high shopper traffic. In Mutiara Damansara, Boustead holds properties such as The Curve, [email protected], Menara UAC and Royale Bintang Curve.

According to the group's 2010 annual report, The Curve and [email protected] have book values of RM434.2 million and RM143.1 million, respectively, while Menara UAC and Royale Bintang Curve have book values of RM78.3 million and RM38.8 million, respectively. The Mutiara Damansara assets were last revalued in 2010, except for Royale Bintang Curve, which was revalued in 2005.

In the city centre, the group has two commercial buildings along Jalan Raja Chulan — Menara Affin and Menara Boustead — with book values of RM129.5 million and RM125.2 million, respectively. While Menara Affin was revalued in 2010, Menara Boustead was last revalued in 2001.  It also owns the four-star Royale Bintang Kuala Lumpur with a book value of RM102.4 million (last revalued in 2003) and the RM85.4 million (revalued in 2010) 183 Ampang resort-style condominiums on Jalan Ampang.

Other notable properties include the 41.2ha University of Nottingham Malaysia Campus in Semenyih, which has a book value of RM160.5 million (last revalued in 2003), as well as several commercial properties in Penang and Seremban.

The book values of the properties mentioned add up to RM1.3 billion, which could be the potential value of the REIT should Boustead choose to explore that path.

On the property development side, Boustead has only 14.31 acres of development land left in Mutiara Damansara. The land has a book value of RM137.3 million or RM220.26 psf.

The group's main development land bank is in Mutiara Rini, Skudai, Johor, where it has 356.16ha. The leasehold land was last valued in 1995 at RM144.5 million, which implies a book cost of RM3.77 psf.

An industry insider said Boustead, which owns a number of properties in the Golden Triangle of Kuala Lumpur, could ride the re-valuation of its property and land value with the proposed Klang Valley mass rapid transit project. He said the number of REITs that are trading at a premium to their net asset values per share is increasing, noting that REITs can now afford to raise capital to purchase assets without diluting unitholders.

"Most REITs have recovered from the global financial crisis and are yielding higher returns in a short space of time as commercial real estate generates a huge amount of cash flow from rent," said the industry insider, adding that Boustead's profit from its property division climbed to RM139 million in 2010 from RM106 million the year before.

Another analyst noted that REITs, supported by yields, are increasingly trading above book value, while smaller property stocks find it hard to reach book value.

"It is not impossible for Boustead to have a REIT for its properties since the wider group (including parent LTAT) may have plans to develop certain prime land in KL," noted the analyst, referring to the Jalan Cochrane and Jalan Ipoh land.

The analyst points out that Boustead also has experience in setting up REITs, having established Al-Hadharah Boustead REIT, which was the first Islamic plantation-based REIT in Malaysia. She said Boustead has the potential for a property REIT as it could rely on a variety of buildings and prime locations, especially in the city centre and Mutiara Damansara area, to add value.

The analyst also said that, while minority shareholders of Boustead benefited from the de-listing of Boustead Properties Bhd several years ago, the property division is still developing and expanding its portfolio of assets with yield-accretive potential.

On the other hand, another analyst familiar with the stock said Boustead might want to consolidate all its properties and separate them into different holding companies, rather than putting them all together and listing them as a REIT.

"There is a potential for Boustead to unlock the value of its properties and land, but to list them as a REIT, it's not going to happen anytime soon," he said, adding that over the longer term, Boustead might reconsider listing its property arm again.

Meanwhile, an analyst with ECMLibra Investment Research said Boustead might also not include all its properties in a REIT listing as they are still waiting for the properties to mature.

"Their properties such as The Curve and [email protected] are still not fully rented, thus, they might want to wait until the properties to become mature before considering a REIT," she said.

"Relisting the property arm could give more value to Boustead, as they seek to expand their properties and land area to add more value to the group as a whole," the analyst said.

She noted the group has not hinted of plans to unlock the value of the properties via a listing, stressing the group had done it before, but then later took the property arm private again in 2008.

"We welcome the government's initiative to improve connectivity in the form of a mass rapid transit system, which we believe will benefit Mutiara Damansara and increase shopper traffic to this part of the Klang Valley," Boustead said in its outlook for the property division in its latest annual report.

The group also said it is constantly on the lookout for land and looks forward to the government's development plans for transforming the Greater Kuala Lumpur/Klang Valley into a world-class metropolis.

Boustead added four sen to close at RM5.38 on turnover of 285,700 shares last Friday. The counter traded to a 52-week high of RM6.14 on Feb 9, and a low of RM3.42 on March 23, 2010.

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