AR-REIT to defer RM400m asset buys

AMANAHRAYA Real Estate Investment Trust (AR-REIT) will hold back the purchase of three to four office buildings worth RM400 million unless the stock market turns better towards the year-end, its manager said.

The REIT has lined up the potential assets in the Klang Valley, including three in Cyberjaya that are now owned by Amanah Raya Bhd and leased to several government ministries, but the weak market has made it hard to raise money.

"The issue now is, when is the right time. No price is the right price in the current market. Should the market stabilise, say towards the end of the year, we will look at it again," said Sharizad Jumaat, managing director of AmanahRaya-JMF Asset Management Sdn Bhd, which manages the REIT.



"In this market we can't be very aggressive. We can only review, refurbish and be ready for asset injection should the market stabilise," Sharizad said in an interview with Business Times in Kuala Lumpur yesterday.

It may invest a small amount to upgrade the Silver Bird building and the Holiday Villa Langkawi this year, she said.

The fund has debt amounting to 37 per cent of its shareholder fund and can still buy up to RM50 million worth of assets before it exceeds the 50 per cent gearing limit of a REIT under the rules.

Many REITs' expansion plans are likely to be stuck this year since it is not viable to sell new shares to fund acquisitions after their stocks got a bashing last year.

Shares of AR-REIT closed at 75 sen yesterday, sharply lower than its last placement price of 94 sen.

Still, Sharizad said, AR-REIT may prove more resilient and a reliable bet for investors seeking a stable income when interest rates are falling.

At the current price, AR-REIT offers a higher dividend yield of 9.4 per cent compared with the five-year government bond yield of 2.8 per cent. Its yield is also higher than investment-grade corporate papers that yield between 5.25 per cent and 6.5 per cent, she said.

AR-REIT is not facing any refinancing issue since its loans are mostly long-term, maturing only from 2011.

Sharizad said AR-REIT is more resilient during a downturn because its assets are from various sectors, its leases are long-term ranging from six to 15 years, and its tenants are mostly leaders in their industry, including CIMB Group, Permanis, Sime UEP and SEGi College.

"We are more defensive since our properties are multi-sectored. Most other REITs are in single sectors. This gives us more choice for assets, given especially the small property pool Malaysia has," she said.

Close to two-thirds of its portfolio is invested in office and industrial buildings; a third in assets in the education sector, such as college buildings; and the rest in tourism, like hotels and resorts.

By Business Times (by Chong Pooi Koon)

Raw deal for IOI Prop’s minority shareholders

PETALING JAYA: There is little doubt about IOI Corp Bhd’s Tan Sri Lee Shin Cheng’s ability to seize an opportunity when he sees it.

The plantation group’s executive chairman and CEO’s move to buy out its property arm may not surprise many, but some analysts feel IOI Properties Bhd’s minority shareholders deserve a better deal.

“We advise investors to sell the stock (IOI Prop) into strength,’’ CIMB Research said in a note to clients yesterday. The firm was “not keen” to swap IOI Prop’s shares for IOI Corp, but noted that the “alternative may be even less palatable.’’

IOI Corp late Wednesday offered to buy the remaining 199.7 million shares from IOI Prop minority shareholders at 0.6 share in IOI Corp at market price plus 33 sen cash per IOI Prop share.

This means that the offer price will fluctuate with IOI Corp’s share price movement. Shares in IOI Corp plunged 24 sen yesterday to RM3.68, while IOI Prop shot up 27 sen to RM2.49.

CIMB has a target price of RM3.20 for IOI Corp.

It opined that IOI Corp was “overvalued” at Wednesday’s closing price of RM3.92. It also argued that based on CIMB’s target price, the offer would equal RM1.92 worth of IOI Corp’s share plus 33 sen cash.

This works out to RM2.25 per IOI Prop share.

Maybank Investment Bank analyst Ong Chee Ting believed IOI Corp risked “low take-up rate” for its offer. Ong has a target price of RM2.90 for IOI Corp.

“Although it is unlikely to go down well with IOI Prop’s minority shareholders, the delisting would encouraged them to sell’’ as they won’t risk holding shares in an unlisted company, he said.

The deal breaker, however, are the government-linked funds Valuecap, Permodalan Nasional Bhd and the Employees Provident Fund, which collectively hold an estimated 10% stake in IOI Prop.

“If they act in concert and reject the offer, IOI Corp won’t be able to get the 90% acceptance,’’ said Tan Ting Min, an analyst at Credit Suisse Securities Malaysia wrote in a note yesterday.

He believed, however, that the market would see the privitisation as “marginally positive” for IOI Corp as it was value enhancing.

Credit Suisse upped its target price for IOI Corp from RM3.27 to RM3.31 yesterday.

IOI Corp needs to increase its stake in IOI Prop to above 90% to take the company private. Even if it failed to get the required number, IOI Corp said on Wednesday, it intended to take the requisite steps to delist IOI Prop from Bursa Malaysia.

“We believe the offer is fair, if not favourable, bearing in mind that IOI Prop may need to provide for impairment charges for its Sentosa Cove projects (in Singapore).’’ HwangDBS Vickers Research said in a report yesterday.

Based on Bloomberg’s consensus estimates, the IOI Corp offer was 36% below IOI Prop’s book value of RM3.63 and valued the company 8.9 times its forecast earnings for the year ending June 30, 2009.

Historical data showed that IOI Prop shares had been consistently traded above its book value since early 2000 until the middle of last year when equity prices worldwide collapsed.

“We lament the privatisation or delisting of IOI Prop as the company is one of the largest and most profitable developers in Malaysia and has been a benchmark and role model to many,’’ CIMB said.

The firm said IOI Prop’s revised net asset value stood at RM6.15 per share, or RM5.2bil. At yesterday’s close, its market value was RM2.07bil.

If the deal goes through, IOI Corp will fork out about RM64mil cash and issue some 116.9 million new shares at market price for the additional 24% stake in IOI Prop.

The deal, pending approvals from shareholders of both companies, is targeted for completion by end-June.

By The Star (by Izwan Idris)