Plaza VADS refurbishment may lift AHP

AMANAH Harta Tanah PNB (AHP), one of the "quieter" real estate investment trusts (REITs) among the 16 listed on Bursa Malaysia, may surprise upon the completion of its refurbishment works at its crown jewel, Plaza VADS, in Taman Tun Dr Ismail, Kuala Lumpur.

According to AHP's 2011 annual report published earlier this year, the refurbishment works include the construction of a new podium block that is expected to be completed by end-2013 and are estimated to cost about RM59 million.

This is a significant investment considering Plaza VADS' net book value of RM100 million as at Oct 31, which makes up the bulk of AHP's total net asset value (NAV) of RM155.24 million as at Sept 30.

When contacted, AHP's manager Pelaburan Hartanah Nasional Bhd declined to provide details on the new podium block, such as the size of the additional space that will be created for rental income. Nonetheless, according to the annual report, the 24-storey Plaza VADS currently has a net lettable area (NLA) of 194,275 sq ft and a 97.4% occupancy level, commanding an average rent of RM3.54 per sq ft per month.

Currently, 77.9% of the space is occupied by Telekom Malaysia Bhd's unit VADS Bhd, whose tenancy agreement expires in 2015. Other tenants include YSP Industries (M) Sdn Bhd and IBM Malaysia Sdn Bhd, whose tenancy agreements are expiring this year.

It is only natural to expect higher rental rates with the renewal of the tenancy agreements. This will, of course, enhance AHP's returns.

While details are scant, AHP did say in its 2011 annual report that an "upgraded and refurbished Plaza VADS is not only expected to attract new tenancies at a more competitive rate, but also improve the renewal rate of existing tenancies".

That being the case, the REIT, which is 46.1% controlled by Skim Amanah Saham Bumiputera and Permodalan Nasional Bhd, may see income enhancement when the refurbishment works are done and when existing tenancies have been renewed.

AHP paid out 3.7 sen per unit in February, which was its final distribution for FY2011, and another 3.7 sen in August, which served as an interim distribution for FY2012. Combined, the 7.4 sen per unit gave investors a yield of 6.85% based on the unit's closing price of RM1.08 last Thursday.

Assuming that a sizeable NLA is added to Plaza VADS and higher rental rates are achieved, AHP may see a substantial increase in income over the next few years. This would translate into better yields for unitholders, market observers say.

AHP reported a net profit of RM6.17 million for the nine months ended Sept 30, 2012, a slight increase from RM6.15 million in the previous corresponding period. It is worth noting that for AHP, a revaluation gain was negligible. This means virtually all its profit is from rental income, which, unlike revaluation or accounting gains, can be distributed to unitholders.

In addition, AHP's shareholders' funds stood at RM155.24 million as at Sept 30, with no borrowings except for a revolving credit facility of RM14.4 million taken to fund the refurbishment works at Plaza VADS. With its low gearing, the REIT can gear up to the maximum 50% threshold and raise almost RM80 million to fund new asset acquisitions.

Being the only listed REIT controlled by PNB, AHP has been trailing its peers in terms of new asset purchases. The lack of news flow and visible growth strategies have deterred interest in the REIT, which has seen thin trading volume.

Nevertheless, market observers say a more aggressive expansion plan, coupled with potential corporate exercises relating to PNB, may generate interest in the REIT.

Apart from AHP, PNB has an unlisted REIT in PNB REIT, which owns seven properties in Kuala Lumpur and Johor Baru worth about RM1 billion. They are Menara PNB, PNB Darby Park, PNB Damansara, Menara Tun Ismail, Wisma KPMG, Plaza Pelangi and Pelangi Leisure Mall.

It was previously reported that PNB was looking at listing PNB REIT. If this is still in the plans, then it will be difficult to not link AHP to potential new corporate exercises, market observers say.

To be fair, AHP has embarked on a series of asset restructuring exercises involving the divestment of a number of its properties, especially shophouses, over the past few years.

In its most recent exercise, AHP disposed of a 3?storey shophouse in Melaka for RM650,000. "The rationale for the disposal was in line with the objective of PHNB, the manager of AHP, to restructure the latter's portfolio so as to enhance the value of the fund. The disposal consideration is above market value," it said in an announcement.

The proceeds from the disposal, says the REIT, will be used as working capital and for future expansion of AHP's real estate portfolio.

Prior to this disposal, AHP concluded the sale of its four-storey shopoffices in Taman Melawati, Kuala Lumpur, for a cash consideration of RM1.6 million.

The divestment of these shophouses may pave the way for AHP to focus on growing its asset base with major property purchases.

This story first appeared in The Edge weekly edition of Dec 17-23, 2012.