• Purchasing Vista Tower at The Intermark for RM455m

• Vista Tower’s occupancy rate is 74%, giving a yield of 6.5%

• Positive on the purchase price as it is 13% lower than market value

• Maintain BUY with unchanged TP of RM1.15

Purchasing Vista Tower at The Intermark for RM455m. Amanahraya REIT (ARREIT) announced that it has signed a sale and purchase agreement (SPA) with The Intermark Sdn Bhd to acquire Vista Tower for RM455m cash. Vista Tower, a 63-storey Grade A office tower with two concourse levels and three basement levels located at The Intermark, Jalan Tun Razak, is ARREIT’s biggest asset acquisition thus far. The acquisition is expected to be concluded in 4QFY17.

Vista Tower’s occupancy rate is 74.4%, giving a yield of 6.5%. Vista Tower is the tallest block of the iconic The Intermark at Jalan Tun Razak. Key tenants include UOB Group, Petronas Refinery & Petrochemical Corporation and BNP Paribas Malaysia. The building is also multimedia super corridor compliant with up-to-date facilities and underwent an extensive refurbishment in 2011. We believe that there is still upside for the occupancy rate in the future. The demand for Grade A office in a recognisable and strategic address should remain stable.

Positive on the purchase price as it is 13% lower than market value. We are positive on the latest acquisition as it is bought below the RM523m market value as appraised by an independent valuer. Furthermore, ARREIT’s total asset value (TAV) is expected to increase by 33.5% to RM1.56b, thus pushing its TAV from number 12 among REITs (excluding KLCC Stapled) listed on Bursa to number 10.

Earnings impact. ARREIT’s revenue is expected to increase by 48.9% to RM91.9m from the anticipated annual income of RM30.2m derived from Vista Tower in FY18F. Subsequently, its core net profit is expected to climb by 20.5% to RM46.5m. It plans to fund the acquisition through a RM450m medium-term corporate bond and RM5m internally generated funds. Assuming borrowing cost of 4.65%, ARREIT will increase its interest expenses by RM20.9m while its gearing is expected to climb to 0.49x from 0.30x currently.Maintain BUY with unchanged TP of RM1.15. We make no changes to our earnings assumption pending completion of the deal. Our TP is based on DDM model (required rate of return: 7.7%, terminal growth rate: 1%). Dividend yield of ARREIT is also attractive at 5.8%.

Source: MIDF Research - 8 Sept 2017