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