KUALA LUMPUR (June 23): AmanahRaya Real Estate Investment Trust (REIT) is selling Wisma AmanahRaya to its major unitholder Amanah Raya Bhd (ARB) for RM78 million, proceeds which it intends to redeploy for more yield and value-accretive properties or to repay borrowings.

ARB owns over 63% stake in AmanahRaya REIT (fundamental: 1.3; valuation: 2.7).

In a filing with Bursa Malaysia today, AmanahRaya REIT said its trustee CIMB Islamic Trustee Bhd had entered into a conditional sale and purchase agreement with Annex Sentral Sdn Bhd for the said disposal.

Annex is a wholly-owned subsidiary of AmanahRaya Development Sdn Bhd, which is in turn a wholly-owned subsidiary of ARB.

The REIT’s manager, AmanahRaya-REIT Managers Sdn Bhd, said it is of the opinion there is limited upside potential to the future value of Wisma AmanahRaya, hence it reasoned this is an “opportunistic” disposal.

“Further[more], the property is currently being tenanted to ARB, where the tenancy agreement will expire on Aug 16, 2016. ARB has the right not to renew the tenancy agreement and if the tenancy is not renewed, the manager believes that it would be difficult to find a new tenant, considering that the property is approximately 48 years old with old facilities,” it said.

“The manager believes it would need to undertake major and extensive refurbishment exercise, considering the age of the property, in order to entice new tenants,” it added.

Therefore, the REIT’s manager intended to redeploy the proceeds from the disposal, for more yield and value accretive properties.

AmanahRaya REIT’s cost of investment into Wisma AmanahRaya was RM68 million as at Feb 26, 2007. Taking into account RM3.98 million as expenses for the proposed disposal, the REIT is expected to book a one-off net realised gain of about RM6.02 million.

With regards to the physical proceeds of RM78 million, around RM74.02 million will be redeployed to new investments within the next 12 months.

“In the event [that] the manager fails to secure any accretive investments within the next 12 months, the manager will use the proceeds from the proposed disposal to part settle the existing borrowings of AmanahRaya REIT,” the filing read.

AmanahRaya REIT’s total borrowings as at Dec 31, 2014, stood at about RM364.15 million.

“Hence, such repayment is expected to result in a financing cost savings of approximately RM3.78 million per annum,” it added.

The proposed disposal is subject to the approval of AmanahRaya REIT’s unitholder, at an extraordinary general meeting to be convened.

Barring any unforeseen circumstances, the REIT expects to complete the disposal by the fourth quarter of 2015.

AmanahRaya REIT fell one sen or 1.12% to 88.5 sen per unit at market close today, valuing the trust at RM513.03 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)