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Monday, August 18, 2008

AmARA REIT enhances value of properties

AM ARA REIT Managers Sdn Bhd has embarked on enhancing the value of its commercial property assets, including a rebranding exercise for The Summit Subang USJ, to boost earnings.

This will see Am ARA reposition and rebrand the retail complex at The Summit, which it acquired in March for RM263.28mil.

The Summit Subang USJ which will be refurbished and rebranded by AM REIT Managers to make it the shopping destination of choice in Subang Jaya.

Am ARA director Michael Lim said the plan was to make The Summit the shopping destination of choice in Subang Jaya by tapping into the middle-income population there.

He said a retail consultant would be engaged to prepare a blueprint to reposition and rebrand the complex. The next stage would be to refurbish the complex to enhance the quality and ambience.

“We do not rule out the acquisition of more units at The Summit from other third-party owners although we will be very selective in such acquisitions.

“Discussions are ongoing with some of the owners and we are evaluating the acquisition of another 70,000 sq ft of space with a purchase value of about RM20mil,” he said.

The Summit has an office tower, a 332-room hotel and a six-storey retail podium, with 2,125 car park bays. The office tower recorded 98% occupancy and the retail podium, 70%. The hotel recorded an occupancy rate of 75%, with average room rate of RM157 per night.

The Summit is one of the six buildings, with a total value of RM840mil that are owned by Am FIRST Real Estate Investment Trust (REIT) and managed by Am ARA.

Other assets are Bangunan AmBank Group, Menara AmBank and AmBank Group Leadership Training Centre in the Kuala Lumpur city centre where the average occupancy rate is 94%. The other two buildings are Menara Merais and Kelana Brem Towers in Petaling Jaya.

Lim said Menara Merais in Section 19, which was about 12 years old, would also be upgraded. He added that the building, which was valued at RM58mil, was about 68% occupied.

“About RM6mil would be spent on asset enhancement works which include upgrading the ground floor main lobby, lift lobby on other floors, toilets, car park and building re-painting,” he added.

Menara Merais, being the tallest building in the area, could be leveraged on to generate advertising income because of the high visibility and high volume of traffic flow into the area, he said.

Also on the cards is to develop part of Menara AmBank in Jalan Yap Kwan Seng. Lim said 17,000 sq ft of “bare” space on the 11th floor, previously rented out as storage space, would be turned into office space.

“Assuming a rental rate of RM5 per sq ft per month, this space can potentially generate additional gross rental income of about RM1mil per annum,” he said.

Asked if Am ARA’s forte was to acquire less costly buildings, enhance the value by refurbishments and then lease them out, Lim replied:

“Our strengths are in identifying good assets for acquisition, having pro-active asset management capability to improve the performance of our assets and also, in efficient capital management.”

AmFIRST REIT’s assets also provided a stable stream of income to its unitholders because tenants would usually opt for three-year tenancy agreements, he said.

The buildings are also geographically spread out with several tenants, hence providing some diversification and reduced concentration risk. The growth of these assets, mainly office space, would be underpinned by the strong demand, particularly in the Golden Triangle area, Lim said.

Am ARA is also leveraging on the demand for good office and retail space to push for higher rental. In the last financial quarter, there was a combined average increase of 15% in rental rates for its office and retail space.

Of the three office buildings in the Golden Triangle, Lim said 32% (or 280,000 sq ft) of the tenanted area was due for renewal from July 2008 to March next year.

“Assuming an average rate increase of 30 sen per sq ft, the renewal may potentially generate another RM1mil in gross rental income on an annual basis,” he said.

Lim added that there was upside for four of its buildings as they had to be revalued within 2009 and he expected potential appreciation in the carrying value of these assets, going by recent transacted prices for office space.

“The revaluation could possibly see an increase in value of 10% from the RM500 per sq ft historical book value,” he said.

On future corporate exercises, Lim said the current gearing was about 47% and the plan was to reduce it to between 30% and 35%. This could involve an equity-raising exercise to reduce gearing and finance future acquisitions.

Lim said this would offer an opportunity to bring in more foreign inevstors to raise AmFIRST REIT’s international profile.

By The Star (by Joseph Chin)

1 comment:

Fiscal Wise said...

I think it's okay to enhance their value especially they are targeting the international market.

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