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Thursday, October 25, 2007

Tower REIT plans to sell properties

By New Straits Times

TOWER Real Estate Investment Trust (Tower REIT) plans to sell two of its three commercial properties, which could provide a gain equivalent to about a year in rental income.

The properties held by Tower REIT include Menara HLA on Jalan Kia Peng, HP Towers in Bukit Damansara and Menara ING on Jalan Raja Chulan Kuala Lumpur.

One source, who identified Menara HLA and HP Tower as the two properties to be sold, said that a foreign investor is likely to emerge as the new owner.

Company officials could not be reached for comments.

Industry players were surprised by the news. The move may be good only if the company has other reinvestment plans, they said.

"Some players like Axis REIT and Atrium REIT have been accumulating properties to enhance its attractiveness and by having a sizeable portfolio they are able to entice more foreign fund managers," he said.

"There is nothing wrong if a REIT sells its property under trust if there is capital gain from the sale or as long as there is money coming in.

"However, hopefully the Tower REIT has plans in the pipeline to reinvest the money," an industry expert said.

In fact, Tower REIT, in its half-yearly report (ended June 30 2007), says that it intends to hold the properties on a medium- to long-term basis.

"In the future, where any of the properties have reached a stage of optimum growth, we may consider selling the properties and hence, realise potential capital gains and thereafter, use the proceeds for alternative investments in properties that meet Tower REIT's investment criteria to further maximise the total returns to its unitholders," Tower REIT added in the report.

On what the property will fetch in the event of a sale to a foreign investor, a property expert said: "Foreign funds are more likely to pay five per cent to 10 per cent more than the market value of the property as they are more willing to speculate on the investment".

Based on this possible upside, Menara HLA, valued at about RM240 million currently, could fetch as much as RM24 million in additional premium. HP Towers is valued at RM150 million while Menara ING is worth some RM75 million.

Assuming it gets a 10 per cent upside from the sale of its properties, this premium itself would be equivalent to a year's worth of rental income.

For example, Menara HLA makes rental of about RM10 million in six months, its half-year report shows. This probably comes up to RM20 million in a year as rental rates are stable.

Tower REIT was listed on the main board of Bursa Malaysia on April 2006. AmTrustee Bhd is acting as the trustee for the REIT.

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