• Al-Salam Real Estate Investment Trust (ALSREIT) is a Shariahcompliant fund with a total portfolio asset value of RM1.24bn, spanning various property segments including retail, office properties, F&B Restaurants, Industrial properties and Colleges across Malaysia.

• Within its portfolio, KOMTAR JBCC MALL (KOMTAR) stands as the largest asset, encompassing 35% of the total property value. Previously, KOMTAR’s occupancy rate was badly affected by the Covid-19 pandemic, but it is gradually improving to 70% - 80% following the reopening of Singapore border in Sep 2022.

• Management plans to transform it into a TOD development within the next 2 years, leveraging the potential spillover effect from the Rapid Transit System (RTS) link, which is poised to be operational in 2027.

• Currently, the share price is trading at a huge discount of 62% to its NAV of RM1.11/share. Overall, we are optimistic on its turnaround, considering it a laggard in the Johor property market.

Company Background

ALSREIT began on 29 September 2015, marked by its listing on Bursa Malaysia Securities Berhad's Main Market, boasting an initial asset value of RM903.1mn. Starting with 31 properties in 2015, AlSREIT has since expanded its portfolio to encompass 54 properties nationwide, including retail outlets, office buildings, food and beverage establishments, industrial assets, and a college. As of 31 December 2023, ALSREIT's asset value stood at RM1.24bn. The management of ALSREIT is overseen by Damansara REIT Managers Sdn Berhad (DRMSB), a subsidiary of the Johor Corporation (JCorp) Group of Companies.

Following our site visit on 30th April 2024 to two properties within ALSREIT's portfolio, Komtar JBCC Mall and @Mart Kempas in JB, here are some observations and our thoughts:

Market Connectivity and Potential: The strategic location of Komtar JBCC Mall (Komtar) within the Ibrahim International Business District (IIBD) underscores its immense potential, especially with the upcoming transportation developments like the RTS link, KTM ETS Gemas-JB Sentral, and improved connectivity to Singapore. Currently, Komtar is accessible from the Customs, Immigration, and Quarantine (CIQ1) complex at Sultan Iskandar Building in Johor Bahru through its bridge connection with JB Sentral. CIQ1 houses separate immigration checkpoints for various modes of transport, including buses, lorries, motorcycles, and cars. Moreover, the construction of the KTM ETS Gemas-JB Sentral line, slated for completion by 2025, promises to expand transportation options for commuters and visitors alike. Concurrently, ongoing construction of CIQ2, linked to the under-construction RTS Link Station Bukit Cagar, is progressing. The RTS is expected to accommodate up to 10,000 passengers per hour in one direction upon its completion in 2026.

The management has indicated that CIQ2 will be seamlessly connected to JB Sentral and Komtar via a bridge, further enhancing accessibility. Positioned within the integrated CIQ1, CIQ2, and KTM ETS Gemas-JB Sentral transportation network, Komtar is primed to attract both local and international visitors. This integration of transportation access opens the opportunity for Transit-Oriented Development (TOD). This enhanced accessibility is expected to draw in up to 300,000 travelers between Johor and Singapore daily, leading to a surge in foot traffic and potentially bolstering retail sales at Komtar JBCC Mall.

Tenant Mix and Positioning: The repositioning efforts by Komtar to differentiate itself through enhanced connectivity are commendable. The management is focusing on a clear positioning strategy for each floor, such as F&B, lifestyle, wellness, and family-oriented offerings, which will help attract a diverse range of visitors and create a unique shopping experience. For instance, Komtar is in negotiations to collaborate with JDT (Johor Professional football club) to open an Esports arena within the Mall. Moreover, activation events like Hari Raya celebrations with celebrities, fit-fest, Explore run, and collaborations with the Ministry of Youth and Sports (Kementerian Belia dan Sukan/KBS) have attracted both local and international foot traffic. Additionally, the planned renovations and curated events are excellent strategies to keep the mall dynamic and engaging for visitors. The management has indicated that the renovation will be conducted in phases, involving the installation of new flooring, ceiling enhancements, and improvements to certain aspects of the building's appearance.

Leasing Strategy and Rental Rates: With the anticipation of increased occupancy rates and improved market conditions post-COVID, it's crucial for Komtar JBCC Mall to adopt a strategic leasing approach. This includes carefully curating the tenant mix to align with the mall's positioning and optimizing rental rates based on market demand and value proposition. Currently, the average rental rate is around RM4.37 per square foot. The management projects that this rental rate will jump to RM10 per square foot upon completion of the RTS Link. Subsequently, the management expects a gradual step-up in rental rates of around 20% to 30%. As of the 4QFY23, the occupancy rate for Komtar has been improved to 63% compare to 52% in 2022. The management is confident to increase the occupancy rate to 70% to 80% at the end 2024. For the @Mart Kempas Hypermarket, the average of rental rate is around RM6.00 per square foot with the healthy occupancy rate of 98% as of Q4FY23. As rental rates are expected to rise in the coming years, ensuring a balance between profitability and tenant satisfaction will be the key.

Future Developments and Expansion: The potential expansion into new areas like esports arenas and pet-related businesses shows a forward-thinking approach to meet evolving consumer preferences. In terms of visitor profiling, on weekdays, up to 60% of visitors come from Singapore, while up to 70% visit over the weekend. In terms of sales, most of the retail sales hit the Gross Turnover (GTO) rate, indicating resilient visitor traffic and positive purchasing behavior. Komtar JBCC Mall would continue to explore innovative concepts and experiences to stay ahead of the curve and remain competitive in the market. In the future, there will be more access and connectivity to Komtar, such as bridges that will directly connect to nearby hotels, Persada Johor International Convention Centre, and Coronation Square. The management is also looking to make Komtar an integrated information center, providing live information on ferry schedules to Batam, Indonesia. As for the @Mart Kempas Hypermarket, which caters to a residential population of 250,000 within a 5km radius, plans are underway to add another 70,000 square feet of retail space within the hypermarket area over the next 2 years, but the details have yet to be finalized. Furthermore, to align with the current trend, additional F&B offerings have been introduced at @Mart Kempas.

Source: BIMB Securities Research - 15 May 2024