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CONTINUING with our article feature on real estate investment trusts (REIT) in Malaysia — we discussed the Al-Aqar KPJ REIT and AmFIRST REIT in our previous article — we have chosen three others to highlight today.
Axis-REIT
Axis-REIT was the first real estate investment trust to be listed on Bursa Malaysia, back in August 2005. The trust was reclassified as an Islamic REIT in December 2008, focused primarily on assets within the office and industrial sectors.
Axis-REIT is among the fastest expanding REITs in the country, enlarging its portfolio from five properties upon inception to 23 as at end-June 2010, with net lettable area under management totalling nearly 3.84 million square feet. The value of assets under management expanded from RM339.6 million in 2005 to RM952.6 million by end-2Q10. This included the recently completed acquisition of two logistic warehouses in Seberang Prai for RM26.5 million.
Its diversified portfolio currently consists of commercial offices, office/industrial buildings, retail warehouses and logistics facilities located in the Klang Valley, Johor, Penang and Kedah.
The trust expects to complete the acquisition of four additional parcels of land plus buildings, for a total of some RM240 million, by October 2010. To part finance the new purchases, Axis-REIT has proposed a placement of up to 68.8 million new units. Upon completion, its total assets would rise to almost RM1.2 billion.
It is further evaluating a number of properties for possible acquisition, including an office building in Cyberjaya as well as logistics and retail warehouses in Johor.
Al-Hadharah Boustead REIT
Listed back in February 2007, Al-Hadharah Boustead REIT is Malaysia's first and to date, only, Islamic plantation real estate investment trust.
Since inception, the trust has added two oil palm estates, in 2008, to bring its portfolio of assets to 10 oil palm estates plus two palm oil mills — located in Perak, Johor, Kedah and Kelantan — collectively valued at RM834 million.
Al-Hadharah Boustead REIT has an unusual performance based income feature, on top of fixed rental income from its portfolio of estates. The trust is entitled to half of the profits earned — as determined by multiplying the actual fresh fruit bunches and crude palm oil (CPO) output with the excess of the actual weighted average CPO price over a pre-determined benchmark level.
In short, the Al-Hadharah Boustead REIT offers investors an exposure to rising CPO prices while its downside risk is capped by the fixed rental income. Between 2007-2009, the trust received nearly RM61 million from this performance-based feature.
The additional income has enabled the trust to exceed its minimum distribution per unit, of 7.38 sen, over the past three years. Distribution totalled 9.3 sen per unit in 2009. Based on prevailing CPO prices, distribution in the current year would also exceed the minimum threshold.
CPO prices averaged above RM2,500 per tonne in 1H2010 while benchmark futures contracts are currently trading just below this level. There are, at the moment, diverging views on prices over the coming months. Some expect CPO prices to rise on the back of production shortfalls due to weather disruptions. On balance, we expect prices to average around RM2,300-2,500 per tonne for the full-year — above the benchmark CPO price of RM2,000 per tonne for 2010-2012.
Starhill REIT
Last but not least, we highlight the Starhill Real Estate Investment Trust, which was, prior to the listing of Sunway REIT and CMMT, Malaysia's largest real estate investment trust with assets totalling nearly RM1.66 billion. It is controlled by the YTL Group, which holds more than a 63% stake in the trust.
Starhill REIT's portfolio, since inception, consisted of four prime properties located in the heart of Kuala Lumpur's Golden Triangle — the Starhill Gallery, Lot 10 Shopping Centre, JW Marriott Hotel as well as the service apartments and commercial podium within the Residences at the Ritz-Carlton.
However, Starhill REIT is currently undergoing a major rationalisation exercise. It recently completed the disposal of the two retail properties, Starhill Gallery and Lot 10, for some RM1.03 billion. The sale will realise some RM204.2 million in terms of distributable income.
Almost all the proceeds from the sale are to be used to acquire hotel assets, both domestic and overseas, within the next six months.
Some of the local possibilities include the Pangkor Laut Resort, Ritz-Carlton Kuala Lumpur, Cameron Highlands Resort, Tanjong Jara Resort and The Majestic Malacca while overseas hotels could include the ski resort Niseko Village in Hokkaido, Japan, the Spa Village Resort Tembok in Bali and the Chedi Phuket.
Upon completion of the rationalisation exercise, Starhill REIT will be repositioned as a full-fledged hospitality REIT.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
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