KUCHING: Shares in AmFIRST Real Estate Investment Trust (AmFIRST REIT) have dropped some 21 per cent fom its 52-week high of RM0.95, bucking the uptrend in share prices for most REITs which started since early 2016 in tandem with falling yields of Malaysian Government Securities (MGS).
The research team at Hong Leong Investment Bank Bhd (HLIB Research) attributed this to AmFIRST REIT’s declining of dividend per unit (DPU) from 9.31 sen in 2012 to 5.1 sen in 2016, due to lower occupancy rate for some properties, lacklustre performance from The Summit USJ as well as rebates given to tenants affected by refurbishment exercise.
“Management shared the view of overall challenging outlook for the office market, with slow rental reversion and longer time needed to scout for potential tenants to take up spaces,” it explained.
“In our view, key challenges for AmFirst REIT will be on Wisma AmFirst, The Summit Office and Retail – with occupancy rate below 80 per cent – and Prima 9, which is vacant.
“Besides, RBC Investor Service is giving up 40 per cent space at Prima 10, which will cause further downside pressure for a prolonged period given the challenging office market at Cyberjaya.”
Its management is also of the view that da:men mall located right beside The Summit will be complementing The Summit USJ given the different market positioning, concurring the view of Pavillion REIT.
The former is focusing more on F&B for mid to higher end consumers, while the latter having a cinema, bowling centre and grocery store, concentrating on positioning as a neighborhood mall.
“The combined total net lettable area of The Summit and da:men is around one million square feet – a substantial size to emerge as a signature mall to serve the surrounding community as compared to the size of Pavilion KL and Sunway Pyramid,” it added.
This led HLIB Research to peg more optimism for AmFIRST REIT going forward, as The Summit is currently undertaking RM70m major refurbishment exercise and targeting to complete by July 2016.
“Despite being a strata title mall, the efforts of refurbishment and reposition exercise to create better shopping experience should bear fruit in the near term.
“Higher positive rental reversion is very much likely going forward considering the average rental rate is only about a quarter of that of da:men. Besides, further upside could be reinforced by potential improved occupancy at Wisma AmFirst and The Summit while the rebates given to the retailers and hotels affected by the refurbishment should also end by then.”
With the recent RM250 million acquisition of Mydin Hypermall in Penang via debt, HLIB Research said the REIT’s gearing has reached a level 46.1 per cent, thus limiting headroom for further expansion.
It noted management is looking at possible divestment of its property to pare down the gearing, such as the vacant Prima 9.
“With the portfolio assets now valued at RM 1.628 billionn, AmFirst REIT could potentially raise up to RM63.5 million assuming threshold of 50 per cent debt and a cash call of up RM100.2 million.
“While we deem the yield to be attractive at current level reinforced by management’s intention to maintain high payout, we foresee it may take a while before the turnaround of The Summit to flow into profit and loss.
“Also, with new chief executive officer and chief financial officer coming on board changes in strategy and repositioning exercise may take buffer time before it could bear fruits. Hence, a more certainty in the realised income to sustain the DPU in the coming quarters is warranted.”