PETALING JAYA: Real Estate Investment Trusts (REITs) that have more diversified sources of income may gain some traction among investors moving forward given that they are exposed to different segments of the property market.
One such example is the low-profile AmFirst REIT’s unit price which has been on a general downtrend since a year ago and has started perking up again as interest from the market picked up.
The REIT stood out among its peers given that it had recently diversified from commercial office space into the retail leasing segment.
AmFirst REIT said that the commercial office market in the Klang Valley would continue to be a tenants’ market due to further incoming supply of office space this year.
Presumably due to this factor, the trust had recently intensified its efforts to diversify its sources of rental income.
While office space leasing was AmFirst’s main income contributor, the trust had also increased its contribution from the retail segment.
Analysts said that the REIT was uniquely placed within the challenging retail segment space and could still gain from it.
Within the retail segment, AmFirst was involved within the midstream rather than downstream portion of the segment through its exposure to Mydin HyperMall.
The Mydin HyperMall in Bukit Mertajam, Penang is the third largest tenant by rental income to AmFirst REIT after AmBank Group and RBC Investor Services (M) Sdn Bhd contributing close to 3% of its rental income.
AmFirst REIT acquired the Mydin HyperMall in January 2016 through the drawdown of its RM250mil new syndicated term loan of five years with interest cost of about 4.68% per year.
This asset with a 100% tenant occupancy provides a triple net yield of 6.5% based on the first five-year term of the 30-year lease, the trust said in its annual report.
Within the retail space, AmFirst REIT also owns The Summit Subang USJ retail mall.
The manager had recently secured a new anchor tenant for The Summit Subang that is also strategically located close to the new light rail transit station along the Kelana Jaya Line that is set to be opened later this year.
The manager believed that with Home Products (M) Sdn Bhd as its new anchor tenant would help reposition The Summit Subang mall and help catalyse growth in occupancy and improved rental rates moving forward.
In a recent non-rated report by Hong Leong Investment Bank (HLIB) dated June 9, the research house believed that AmFirst REIT was severely punished by the market due to its lower dividends per unit bucking the uptrend in unit prices for most other REITs.
HLIB said the challenging outlook for office space would still be present with slow rental reversions of 2%-4% per year.
The research house which had recently met with AmFirst’s management said that The Summit USJ would be differentiated from its close competitor da:men that is beside The Summit USJ with da:men being more focused on food and beverages for middle- to higher-end consumers.
HLIB believed that there were some positive developments in the trust that might gain the market’s attention.
Among them was the higher reversion of rates at Menara Ambank and the recent disposal of the AmBank Group Leadership Centre for RM36mil, with a realised net gain of RM8.4mil that was distributable.
It also estimates a full-year revenue contribution of from Mydin at RM16mil in the financial year ending March 31, 2017.
“However, with the recent RM250mil acquisition of Mydin Hypermall in Penang via debt, the gearing has reached a level 46.1%, thus limiting headroom for further expansion,” HLIB said, adding that yields at present unit prices are deemed attractive.
After the downtrend last year, AmFirst REIT’s units had gained some 10% from its historical lows of 68 sen in January 2016.
Momentum could be sustained further if the recent upturn in oil prices flows through the economy and the property market in general given that the latter is usually a reflection of the broader economic’s performance.
According to HLIB, AmFirst REIT has a yield of 7% for FY16. The indicative yield is at the upper range of yields on other REITs in Malaysia.