KUALA LUMPUR: AmFIRST Real Estate Investment Trust (AmFIRST REIT) said the acquisition of Mydin Hypermall in Bukit Mertajam, Penang is expected to help lift the distribution per unit (DPU) by 0.34 sen per unit per year.

Am ARA REIT Managers Sdn Bhd chief executive officer Wong Khim Chon said this is based on lease terms which include an initial net property income yield of 6.5% for the first five years.

The REIT is acquiring the three-storey hypermall building from Mydin Wholesale Cash and Carry Sdn Bhd for RM250 million cash. The Edge Financial Daily on Tuesday reported that the store is at the tail end of construction and is expected to commence operations in the third quarter of this year.

Wong said following the acquisition, which is expected to be completed in July, the trust will look to pare down its gearing as it is close to hitting its limit of 50% of assets. AmFIRST REIT (fundamental: 0.6; valuation: 2.7) will fund the acquisition through bank borrowings.

Wong noted that the gearing level of the REIT will rise to 42.8% from 32.65% as at March 31, 2014.

“There will not be enough headroom for further expansion,” he told reporters after the signing of a sale and purchase agreement between AmFIRST REIT and Mydin yesterday.

He said the REIT can choose to increase its units via a private placement or rights issue to pare down its borrowings.

“But we have yet to firm up what we are going to do,” he added.

Upon completion, the hypermall will be fully leased to Mydin Mohamed Holdings Bhd for 30 years with a 10% rental increment every five years.

This article first appeared in The Edge Financial Daily, on April 16, 2015.