MRCB to announce REIT proposal this week

KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) is going to undertake a real estate investment trust (REIT) exercise sooner than thought, as sources noted that the company could look to announce a REIT proposal as early as this week.

Talk of MRCB planning a REIT has been going on the past few months, as management said it is exploring options to rationalise its asset base and ease its debt load. Such options include the creation of a REIT as well as the disposal of its 30% interest in the Duta-Ulu Kelang Expressway (DUKE) concession.

Imran Salim, chief operating officer, told The Edge weekly three weeks ago that the management had mapped out plans to monetise its assets and make MRCB a more property-centric entity.

“We have quality income-generating assets and we are getting good yields out of them. If it happens, we would prefer to go to the market with at least a RM3 billion REIT, which is sizeable and possesses enough visibility to attract foreign investors,” says Imran.

According to AmResearch, MRCB’s net debt stood at RM2.9 billion as at Sept 30, 2013, translating into a net gearing of 1.7 times. Meanwhile, for the first nine months of financial year 2013 (9MFY13), its interest expense or finance cost stood at RM126 million.

For 9MFY13, MRCB reported a net loss of RM111.3 million on revenue of RM607.49 million. The net loss was largely attributed to the high finance cost, operationally. It, however, derived a profit of RM6.04 million from its associated companies.

MRCB’s finance costs accounted for 20% of revenue in 9MFY13, compared with 8.5% in 9MFY12. Cash and bank balance had also decreased from RM644 million as at Dec 31, 2012 to RM473.8 million as at Sept 30, 2013.

MRCB has taken steps to monetise its assets to address its debt position, as it divested its IT business under GTC Global Sdn Bhd to Telekom Malaysia Bhd for RM45 million earlier this month.  

AmResearch said that several “catalytic news flows” to lift MRCB’s balance sheet may kick in in the coming months, starting with asset monetisation of at least RM2 billion.

“MRCB’s de-leveraging efforts would receive a significant kick if plans to recycle its debts via a REIT vehicle pan out. The stock is trading at a steep 45% discount to its revised net asset value (RNAV), and at a trough of price to book value of 1.4 times,” AmResearch said in a report last Wednesday.

The research house stated that the immediate plans are to divest Platinum Sentral for about RM680 million, followed by Shell Tower and Ascott Residences. Such a move would transfer RM750 million of borrowings to the REIT, with realised gains of around RM380 million, it estimated.

“MRCB is set to inject some of its prime office properties in KL Sentral with a total net lettable area (NLA) of nearly 1.3 million sq ft into a REIT, we believe,” AmResearch added.

In the nearer term, Nu Sentral Mall at KL Sentral, in which MRCB has a 51% stake, is set to open by March. It is understood from AmResearch that pre-tenancy rates at about 80% have been filled. The mall has a NLA of 650,000 sq ft, with average starting rental ranges between RM9 and RM10 psf.

MRCB’s merger with Nusa Gapurna Sdn Bhd last August involved the injection of landbank assets, including Subang Lang, 9 Seputeh and PJ Sentral Garden City Phase 1, which could effectively boost MRCB’s gross development value by close to RM6 billion, said AmResearch.

“As such, a favourable outcome to PJ Sentral’s legal impasse will likely kick-start a fresh share price re-rating cycle for MRCB,” it said, pending the High Court’s judgement on the status of PJ Sentral which is currently under dispute with PKNS.

AmResearch, which has re-initiated coverage on MRCB last week, has a “buy” call on the stock with a fair value of RM2.20, a 20% discount to its sum-of-parts (RNAV) estimate of RM2.75 per share.

MRCB is 38.9% owned by the Employees Provident Fund, while Gapurna Sdn Bhd has a 12.5% stake. Free float of shares stands at 39.8%.


This article first appeared in The Edge Financial Daily, on January 27, 2014.