Amanah Raya Bhd (REIT)
from BizTime 16 OCT

GOVERNMENT-owned Amanah Raya Bhd (ARB) plans to invest up to RM1.06 billion to buy properties that can generate more income for the firm.

The firm is on the lookout for office buildings in the Klang Valley, Penang and Johor. It is also eyeing offices and hotels in the UK, said the managing director of Amanah Raya subsidiary Amanahraya-JMF Asset Management Sdn Bhd (AR-JMF) Datuk Mohamed Azahari Kamil.

Henderson Global Investors Ltd, which invests in properties worldwide and has US$116 billion (RM427 billion) funds under management, is positive on the UK market.

Office rental values are rising in that country, said head of property equities Patrick Sumner.

"As at September, we had RM5.3 billion funds under management. We can invest up to 20 per cent of that in properties.

"The quality of the properties we want to acquire is very crucial. We want to ensure that the yields are maintainable and the buildings are leased out to respectable counter parties," Mohamed Azahari told Business Times in Kuala Lumpur.

ARB will launch a RM340 million real estate investment trust (REIT) - the first by a government-owned firm - comprising eight properties such as offices, hotels, factories and educational institutions.

The diversified asset classes will help spread out risks, Mohamed Azahari said.

The occupancy rates for the assets are between 80 per cent and 90 per cent, and most of the tenants are listed firms. They are currently generating an average yield of about 7.5-8 per cent.

ARB still has 14 properties in its portfolio, and it plans to inject two to three more into the REIT within a year.

Institutional investors can expect returns of at least 6.9 per cent, while retail holders may get 7.3 per cent.

Under Budget 2007, a REIT will be exempted from taxes given that it distributes more than 90 per cent of net income to investors.

In addition, tax on dividends received by local and foreign individual investors will be reduced to 15 per cent from 28 per cent, while tax on foreign institutional investors will be reduced to 20 per cent from 28 per cent.

"We hope that with the tax reduction, more foreigners will look at our REIT market. Although we are still not as competitive as Singapore and Thailand, we believe we have quality assets that can cushion the taxes," Mohamed Azahari said.

Foreign fund Morgan Stanley has already indicated interest in taking up some units in ARB's REIT, he added.

Standard & Poor's (S&P) has given it a "BBB-" rating with stable outlook.

The property trust will raise some RM120 million to RM150 million.

ARB is looking into subscribing to 30 per cent of the property trust.

The listing, initially planned for December, has been postponed to February next year for "strategic reasons". It wants to wait for S&P's rating as well, Mohamed Azahari said. The prospectus is slated to be out in January.

ARB also has plans to launch an Islamic REIT by the second half of next year.

The properties that it purchases will require the tenants, preferably listed companies, to stay at least five years in the buildings. ARB requires a substantial amount of security deposits from its tenants with payment of rental yields to standard banking arrangements.

Its current assets include Wisma Amanah Raya in Jalan Ampang, which it acquired last year for some RM60 million; Selayang Mall acquired from Seal Bhd for RM120 million; and the hotels it bought from Advance Synergy Bhd for RM105 million, namely Holiday Villa Cherating, Holiday Villa Alor Star and Holiday Villa Langkawi. It also owns the Prime College building in Subang Jaya.