Highlight

• We had recently met up with the management team of AmFirst REIT and below are the key takeaways.

• Severely punished due to lower DPU. Share price has retracted some 21% to RM0.75 from a 52-week high of RM0.95, bucking the uptrend in share prices for most REITs which started since early 2016 in tandem with falling MGS yield.

• Reiterate challenging outlook for office. Management shared the view of overall challenging outlook for the office market, with slow rental reversion (2-4% per term) and longer time needed to scout for potential tenants to take up spaces.

• Competition from da:men? Management is of the view that da:men (right beside The Summit) will be complementing The Summit USJ given the di fferent market positioning with the former focusing more on F&B for mid to higher end consumers, concurring the view of PavREIT (owner of da:men).

• Some positive note s. Higher reversion was achieved for Menara Ambank and relocation of tenants from the recent disposal of AGLC should provide further upside. Furthermore, we shall see a full year revenue contribution of Mydin at circa RM16m p.a. in FY17.

• More optimism going forward. Despite being a strata title mall, the efforts of refurbishment and reposition exercise to create better shopping experience should bear fruit in the near term, as such higher positive rental reversion is very much likely going forward considering the average rental rate is only about a quarter of that of da:men. Besides, the rebates given to the retailers and hotels affected by the refurbishment should also end by then.

• High gearing with limited headroom for growth. With the recent RM250m acquisition of Mydin Hypermall in Penang via debt, the gearing has reached a level 46.1%, thus limiting headroom for further expansion.

• Attractive yield, but... While we deem the yield to be attractive at current level reinforced by management’s intention to maintain high payout, we foresee it may take a while before the turnaround of The Summit to flow into P&L.

Risks

• Oversupply remains the key concern for office assets;

• High gearing compare to industry average.

• Lower than expected performance from the Summit Retail post refurbishment;

• Slower rental reversion rate for office market.

Valuation

• A DPU of 5.10 sen in FY16 ending Mac, representing a yield of 6.8% (based on closing price of RM0.75 at 31 Mac). Currently, it is trading at relatively cheap P/NAV around 0.59x (industry average:

Source: Hong Leong Investment Bank Research - 9 Jun 2016