Recently, an article published by Floyd Tolland (probably not his/her real name on Be3), with an “analysis” about AmanahRaya Real Estate Investment Trust (ARREIT) paints an overly pessimistic picture, failing to capture the full scope of the REIT’s potential. 

While it is true that ARREIT has faced challenges in the past, focusing solely on historical performance without considering its current value and future prospects does a disservice to investors seeking a fair evaluation. ARREIT is not a contracting entity as portrayed, but rather a REIT in the midst of a strategic restructuring that has created substantial upside opportunities for investors.

Undervaluation Signals Opportunity

At its current share price of RM0.39, ARREIT trades at a steep discount to its Net Tangible Asset (NTA) value of RM1.27. This represents an undervaluation of nearly 70%, making it one of the most attractively priced REITs on the market. For value-focused investors, this discrepancy between market price and asset-backed valuation underscores a compelling buying opportunity.

Recent reports highlight ARREIT’s 28% share price recovery in the last quarter, indicating improving market sentiment. This uptick aligns with the REIT’s improving operational fundamentals, driven by proactive asset management and enhanced property performance. Instead of focusing on past declines, investors should look at the REIT’s current trajectory, which points to a leaner, more efficient asset structure capable of delivering sustainable growth.

Improving Operational Metrics

ARREIT’s latest results for 3Q FY2024 show a strong rebound:

• Rental revenue grew to RM18.8 million, a 6.3% year-on-year increase, reflecting better occupancy rates.

• Net realised income before taxation surged by 160.5% year-on-year to RM3.1 million, driven by lower expenses and reduced borrowing costs.

These improvements demonstrate that ARREIT has successfully executed strategies to stabilise its portfolio, cut costs, and enhance property value. For instance, occupancy at Vista Tower rose from 35.5% in 3Q FY2023 to 58.0% in 3Q FY2024, contributing significantly to rental income. Additionally, Selayang Mall attracted 10 new tenants, adding further stability to revenue streams.

Contrary to claims of contraction, these metrics indicate ARREIT is on a recovery path, with increasing revenues and enhanced cost efficiencies poised to drive future growth.

Dividend Income Bolsters TSR

While past commentary fixates on the Total Shareholder Return (TSR) of -32% over five years, it fails to acknowledge the consistent dividend payments that have mitigated losses. ARREIT has maintained a steady distribution policy, providing regular income to investors even during challenging periods. For long-term income-focused investors, this reliability is a significant advantage over more volatile equity investments.

Moreover, as operational performance improves and occupancy rates rise, dividend yields are expected to increase, further enhancing TSR in the coming years.

Future Growth Catalysts

ARREIT’s strategic initiatives position it well for sustained growth:

• The planned acquisition of Sekolah Tinta, an education asset with a long-term lease, will provide stable recurring income.

• The divestment of Contraves for RM42.5 million will free up cash flow for higher-yielding investments and reduce gearing, making ARREIT leaner and more agile.

• Proactive environmental, social, and governance (ESG) measures, including energy-efficient upgrades at key properties, align ARREIT with evolving investor preferences for sustainable assets.

Additionally, the REIT’s ability to secure new tenants and improve occupancy rates across its portfolio signals strong demand for its assets, particularly as the broader property market stabilises.

ARREIT’s relative underperformance in past years must also be seen in the context of broader REIT market challenges, including rising interest rates and a subdued property sector. Despite these headwinds, ARREIT has demonstrated resilience and taken proactive steps to strengthen its portfolio. Its recent performance is evidence of these efforts paying off, setting the stage for a meaningful recovery.

Conclusion

The criticism leveled against ARREIT for its historical performance overlooks the significant progress the REIT has made in recent quarters. With a deeply undervalued share price, improving fundamentals, and a clear path to growth, ARREIT offers a unique opportunity for investors to capitalise on its recovery.

While past challenges are undeniable, they do not define ARREIT’s future. The current pricing disconnect, coupled with a leaner asset structure and strategic growth initiatives, makes ARREIT a strong candidate for investors seeking undervalued opportunities in the REIT space. As ARREIT continues to deliver on its restructuring and operational improvements, its market value is expected to realign with its strong asset base, rewarding long-term investors in the proces