Investment Highlights

• Selling Silver Bird factory for RM105m

• Positive on asset consolidation plan

• Portfolio enhancement

• Maintain BUY with unchanged TP of RM1.11

Selling Silver Bird factory for RM105m. Amanahraya REIT (ARREIT) has announced that it is selling its Silver Bird factory for RM105m, which is higher than the market value RM102m. ARREIT will be able to achieve a net gain of RM2.4m from the asset that was acquired 10 years ago. The buyer is Nippon Express (Malaysia) Sdn. Bhd. The deal is expected to be completed by 1HFY18.

Positive on asset consolidation plan. We are positive on this asset disposal, which marks the start of ARREIT’s asset consolidation plans. Note that the Silver Bird factory has been vacant for a while and is not yield accretive. Management plans to pare down borrowings with the proceeds, which will result in a lower gearing of 0.42x from 0.49x (taking into consideration of the injection of Vista Tower). Potential interest savings is about RM5m annually from lower borrowings.

Portfolio enhancement. According to news report, ARREIT is also looking to sell off South City Plaza Block A&B in Seri Kembangan (estimated market value of RM16.0m), Holiday Villa Alor Setar (estimated market value of RM35.9m) and the Gurun Automotive Warehouse in Kedah (estimated market value of RM20.0m). This is to improve their asset portfolio and balance sheet by divesting assets which have limited upside capital gain.

Maintain BUY with unchanged TP of RM1.11. We make no changes to our earnings estimates pending completion of the divestment. 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 5.7%.

Source: MIDF Research - 15 Dec 2017