Mulpha mulls REIT acquisition

PETALING JAYA: Mulpha International Bhd (MIB) may acquire strategic stakes in real estate investment trusts (REITs) to expand its existing portfolio of properties, capitalising on undervalued entities in the Asia Pacific seeking to deleverage amid a global credit rout.

The diversified firm is already a seasoned real estate investor in the region. Its portfolio of residential, commercial, industrial properties besides hotels are located across several countries including Malaysia, Singapore, Vietnam, Hong Kong, China and Australia.

Hence, the idea of owning a REIT could be deemed feasible should MIB decide to unlock the value of its assets and, at the same time, hold a strategic equity interest in a property trust into which the assets would be injected.

MIB executive chairman Lee Seng Huang said the company was eyeing property-related opportunities in Asia Pacific with indirect exposures to the US and European markets. Although real estate prices in the US had fallen due to the subprime loan crisis, he said it was not feasible to make a direct foray into the country as the Malaysian firm lacked operating experience there.

“In general, it will be real estate including real estate companies, real estate funds and REITs. We are not targeting one particular kind of asset class,” Lee told The Edge Financial Daily here recently via video conferencing from Singapore.

Lee added : “It would be cheaper to buy a REIT right now than actually launch it. There are REITs out there which are trading substantially below book value.” He did not elaborate.

MIB is not new to property trusts. The Malaysian firm owns 17% of Australia-listed FKP Property Group which wholly owns the FKP Property Trust. The trust owns diversified assets in the office, retail, and bulky goods segments in eastern Australia, according to FKP’s website.

Note that the Malaysian firm is contemplating the sale of its shares in FKP. Based on FKP’s closing price of A$4.77 last Thursday and MIB’s stake of some 45.11 million shares in the foreign entity, the seller stands to rake in more than A$200 million (RM573 million) from the disposal.

However, the Malaysian firm is not discounting the possibility of raising its stake in the Australian firm.

In a filing to Bursa Malaysia in August this year, MIB had indicated it might buy more shares in FKP from the open market, a move which may trigger a mandatory general offer for the remaining shares it does not own in the Australian entity.

Should MIB decide to sell the shares, the proceeds will be used to finance its working capital needs, and repay bank borrowings. Last Thursday, (Sept 18), MIB obtained its shareholders’ consent giving it authority and flexibility in dealing with the FKP stake.

In Malaysia, MIB’s existing real estate portfolio includes its current headquarters, comprising an office and warehouse, in Jalan Semangat, Petaling Jaya.

The leasehold property has a net book value (NBV) of RM7 million as at December 2007, acccording to the firm’s annual report. Upcoming entities include Menara Mulpha, a new freehold 23-storey Grade A office tower in Jalan Sultan Ismail, Kuala Lumpur. The tower, to be launched in the third quarter of this year (2008), has some 270,000 sq ft of lettable area.

Notable entities within MIB’s overseas portfolio are its assets in Australia. It owns several hotels which include the Intercontinental Hotel Sydney, Hilton Melbourne Airport and Hyatt Regency Sanctuary Cove. These hotels have a combined NBV of RM918.59 million as at the end of last year.

MIB also owns the RM4 billion Norwest Business Park in Sydney, and RM2.5 billion Sanctuary Cove integrated resort in Gold Coast. Works are in progress to transform a vacant building next to Intercontinental into a Grade A office building with about 73,000 sq ft of lettable area for launch next year.

On a larger scale, the diversified commmercial interests of MIB include property development via its 55.56% subsidiary Mulpha Land Bhd. MIB is also into power plant construction via its 23.4% stake in Mudajaya Group Bhd.

Hong Kong-listed Greenfield Chemical Holdings Ltd, a 62.5% entity of MIB, undertakes the manufacturing and sale of industrial paints, besides coal-mining operations.

MIB’s earnings rose in the second quarter ended June 2008, with net profit more than doubling to RM38.58 million from RM16.87 million a year earlier, helped by better performance from its Australian operations. Revenue rose 2.1% to RM245.33 million from RM240.36 million.

Cumulatively, first-half net gain advanced 11.4% to RM43.19 million from RM38.77 million, while turnover was up 13.5% to RM512.6 million from RM451.55 million.

The stock rose 3.5 sen to 98 sen, with 263,100 shares traded last Friday.

By The EDGE Malaysia (by Chong Jin Hun)