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Thursday, September 2, 2010

PKNS picks RM10b projects for REIT plan

SELANGOR State Development Corp (PKNS) has identified 16 high-profile projects worth RM10 billion for future injection into its real estate investment trust (REIT), its chief said.

PKNS general manager Othman Omar said six of the projects have been confirmed. They are Datum Jelatek in Kuala Lumpur, PJ Elevated City, PJ Sentral Garden City and Kelana Sports City in Petaling Jaya, Selangor Science Park 2 in Sepang and the proposed Healthcare City.

Othman said the development site for the remaining 10 projects is expected to be finalised soon.

PKNS aims to launch a REIT soon and it plans to initially inject Menara PKNS in Section 7, Petaling Jaya, Kompleks PKNS and SACC Mall in Shah Alam, with net value of over RM270 million.

"We are excited about the REIT because the proposed injection is a strategic exercise which enables us to leverage on three prime assets to recapitalise," Othman said in an interview with Business Times.

He said the average yield expected from the three properties after a revision to the rental agreements is 7-8 per cent.

Othman said the ability to realise the latent value of PKNS properties will mean a capital gain of RM80 million, RM162 million in cash and a subsequent 30 per cent stake in Amanah Raya's Real Estate Investment Trust (ARREIT).

"Assuming that dividend yield holds constant at 8.5 per cent, we should be looking at RM16 million in additional revenue per year, which bodes well for our liquidity," he said.

PKNS hopes to complete the exercise by the fourth quarter of this year.

Othman said in the medium to long term, PKNS will work with its partners to build and strengthen the asset base of its REIT investments, and when viable, inject more high-profile projects in the Klang Valley to increase the profile and attract foreign investors and fund managers to the investment potential.

He added that with new projects in place, PKNS foresees ARREIT to grow above RM1.5 billion in the next three to four years.

"We are launching the REIT as part of our strategy to transform PKNS group-wide, and a key aspect of that strategy calls for a rationalisation of our assets.

"REITs allow us a ready and stable way to unlock the latent value in these properties and provide significant additional capital which will allow us to be more competitive.

"This is addition to the alternative revenue stream we hope to create in the form of dividends, and the diversifying of our portfolio into properties outside of the state," Othman said.

He is optimistic with the future prospects and development of the REIT industry.

"Malaysia's REITs market is poised with more potential given that it is still relatively limited in terms of diversity, and there remains a lot more areas in which we can explore.

"For example, Hong Kong has long included government premises and even urban car parks in its REITs, given its very real returns ability. Some 40 per cent of Japan's REITs are retail based, and its 25 per cent in Singapore. These are all areas we can look at," he said.

By Business Times

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