AMONG the real estate investment trusts (REITs) in Malaysia, Quill Capita Trust (QCT) is unique in the sense that it has a huge potential pipeline of properties from not just one, but two major shareholders -- Malaysian Resources Corp Bhd (MRCB) and the Quill Group.
MRCB, which owns 30.3% of QCT following the divestment of its Platinum Sentral to the latter in March, owns a rich portfolio of properties in KL Sentral, notably the Ascott Residence and Shell Tower, which have a combined value of over RM900 million.
Meanwhile, Quill Group, which holds 17.2% of QCT, owns three purpose-built office buildings: Quill Building 6, tenanted by HSBC in Lebuh Ampang; Quill Building 9 in Section 14, Petaling Jaya; and Quill Building 18 in Cyberjaya. The three buildings are said to be worth a total of RM930 million.
Analysts are banking on this pipeline of properties to again double the size of QCT in the near future. Note that the property trust’s total assets now stand at RM1.6 billion, having just doubled following the injection of Platinum Sentral by MRCB in March for a consideration of RM740 million.
With the additional pipeline of properties worth another RM1.83 billion from MRCB and Quill Group, QCT could further double its total asset size to RM3.43 billion, AmResearch says in a recent report.
MRCB, in particular, is setting its sights on making QCT one of the biggest property trusts in Malaysia, which could be achieved by gradually divesting its portfolio of properties in KL Sentral and other locations into the property trust as part of the group’s efforts to de-gear its balance sheet.
“Injecting the property assets into QCT will allow us to start paring down our debts quickly. Rather than selling the properties outright, we thought why not enhance ourselves with a REIT. That’s what we did with QCT,” explains MRCB’s executive director Mohd Imran Salim on the injection of Platinum Sentral into QCT.
In the RM740 million Platinum Sentral deal, MRCB received RM476 million cash from QCT while getting the remaining RM264 million in the form of a 30.3% stake in the property trust, thereby becoming its single largest shareholder.
According to MRCB chief financial officer Ann Wan Tee, the Platinum Sentral deal allows MRCB to deleverage by RM476 million while giving it a sizeable stake in QCT, which owns a rich portfolio of property assets in Cyberjaya and Kuala Lumpur.
In MRCB’s case, the group would be incentivised to do another deal similar to Platinum Sentral to monetise its mature property assets so that it can focus on bigger development projects, such as the RM8 billion MX1 mixed-use township in Sungai Buloh and the development of the remaining plot in KL Sentral, called Lot F, with an estimated gross development value (GDV) of RM3.1 billion.
Imran says scaling up asset injections into QCT will free up existing debt at MRCB as well as increase its cash-flow stream via dividend earnings from the property trust, which will soon be renamed MRCB-Quill REIT.
“A large REIT would give us the visibility regionally and globally. The bigger you are as a REIT, the more yields you can generate. Our properties certainly have good yields as well as good tenants,” he says.
In the near term, a look at MRCB’s available-for-sale properties suggests that the next likely candidate for injection into QCT is Shell Tower, a mature asset with reputable tenants that carries a market value of RM837.2 million. Another property that is ready for injection into QCT is said to be Ascott Residences, which could be worth about RM207 million.
Mohd Imran refused to divulge any specifics, but did say that its asset monetisation plans are on schedule.
“We have a pipeline of buildings that in time will be injected into the REIT. Our objective is to reduce our debt and create an alternative cash income stream. The REIT allows us to readjust the assets to be more fruitful to us in terms of cash contribution,” he says.
Moving forward, QCT’s property portfolio is set to comprise MRCB’s prime assets in the KL Sentral area. Other major projects in the area where development is ongoing — Lot F, Q Sentral Tower and Sentral Residences — have a combined GDV of about RM5.65 billion, giving a tantalising glimpse of the REIT’s potential should those assets be injected a few years down the road.
Over a longer horizon, MRCB, with a total outstanding GDV of RM30 billion, is not short of retail and office developments in the Klang Valley and Penang that can be injected into QCT in the future, once these buildings lock in long-term leases and when they start showing steady rental income. For instance, when MX1 and Lot F reach maturity, they could create a bigger property pipeline for QCT.
With that in mind, analysts say QCT has the potential to become a top-tier REIT in terms of assets size. For comparison, Sunway REIT and KLCC Stapled REIT have asset values of RM5.7 billion and RM8.9 billion respectively.
In an April 23 note, AmResearch initiated coverage on QCT with a fair value of RM1.35, based on its existing portfolio, which comprises nine commercial properties and one industrial property. QCT’s shares closed at RM1.21 last Wednesday, giving it a market capitalisation of RM800.3 million.
“QCT has an attractive forward yield of 7.1% for its 2015 full financial year, vis-à-vis the 6% average yield for its peers. We also understand that both Quill Group and MRCB collectively own properties worth about RM1.8 billion that could be injected in the near future, which would potentially see its total assets increase 113% to RM3.4 billion,” it says.
It is worth noting that Platinum Sentral alone constitutes 47% of QCT’s total asset value. With several properties of similar value being lined up for the REIT, future injections will provide a substantial rerating catalyst for the trust in line with expected stronger yields, adds the research house.
This article first appeared in The Edge Malaysia Weekly, on May 4 - 10, 2015.
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