Overview of AME REIT

Investment Policy

AME REIT is an Islamic REIT established with the principal investment policy of investing, directly and indirectly, in a Shariah-compliant portfolio of income-producing Real Estate used primarily for industrial and industrial-related purposes in Malaysia and overseas. The current focus of AME REIT is on Real Estate in Malaysia and overseas investment has not been determined. AME REIT may also invest in other investments as permissible in the REIT Guidelines or as otherwise permitted by the SC. Any material change to the investment policy of AME REIT must be approved by the Unitholders by way of a resolution of not less than two-thirds of the votes given on poll at a Unitholders’ meeting duly convened and held by the Deed.

Investment Object

The Manager’s key objective is to provide Unitholders with a stable and growing distribution of income and to achieve long-term growth in the NAV per Unit.

Key Investment Strategies

The Manager intends to achieve the investment objectives through the implementation of the following strategies, including:

1. Acquisition growth strategy - The Manager will leverage AME Group’s future property development projects as well as third-party properties to source for and acquire properties within Malaysia(1) that fit within AME REITs investment strategy to generate stable cash flows and potential for long-term income and capital grow;
2. Proactive asset management strategy – The Manager will seek to optimise and maintain high occupancy rates, achieve stable rental growth, and maximise investment returns; and
3. Capital and risk management strategy – The Manager intends to optimise AME REITs capital structure and cost of capital within the financing limits set out in the REIT Guidelines and intends to use a combination of Islamic financing and equity financing to fund future acquisitions and capital expenditure
   
   

Utilisation of proceeds

As AME REIT will not be issuing any new Units under the Offering, AME REIT will not receive any cash from the Offering.

Estimated Listing expenses of approximately RM5.0 million to be incurred will be funded through internally generated funds of AME REIT from the Subject Properties and/or the Financing Facilities obtained by AME REIT. The expenses will be fully settled within 1 month from the Listing. The breakdown of the estimated expenses for the Listing is as follows

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​Structure of AME REIT

I REIT Managers Sdn Bhd is the manager of AME REIT. The principal activity of the Manager is to manage and administer AME REIT. The Manager shall, in managing AME REIT, undertake primary management activities for AME REIT, including but not limited to overall strategy, risk management strategy, acquisition, and disposal strategy, property development activities, marketing and communications, individual asset performance, and business planning, market performance analysis and other activities as provided under the Deed.

AME Elite Consortium Berhad is the Sponsor of AME REIT. The Sponsor’s principal business address is No. 2, Jalan I-Park SAC 1/1, Taman Perindustrian I-Park SAC, 81400 Senai, Johor Darul Takzim.

RHB Trustees Berhad is the trustee of AME REIT. The Trustee provides corporate trusteeship services for AME REIT.

Nusa Realtors is the property manager of AME REIT. The Property Manager is responsible for providing property management services to manage, operate and maintain the Subject Properties upon the terms and conditions of the Property Management Agreement.

BIMB Securities Sdn Bhd is the Shariah Adviser of AME REIT. The Shariah Adviser is responsible for all Shariah matters including ensuring Shariah compliance with relevant securities laws and guidelines issued by the SC and applicable Shariah principles, concepts, and rulings endorsed by the SACSC.

AME REIT will acquire the Subject Properties by the terms of the SPAs which are interdependent.

The following diagram illustrates the structure of AME REIT and indicates the relationship between AME REIT, the Manager, the Trustee, the Property Manager, the Shariah Adviser, and the Unitholders.

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Financial Highlights

The following is an extract from Section 4.1 “Unaudited Pro Forma Statement of Profit or Loss and Other Comprehensive Income” of the Prospectus.

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• The rental income increased from RM 26.870 mil (FYE 2020) to RM 35.236 mil (FYE 2022).
• The net property income margin is consistently above 80%, which also reflects that the operating expense is controlled well.
• Net Income margin grew from 73.60% (FYE 2020) to 84.46% (FYE 2021) and fell to 82.46% (FYE 2022). However, the overall Net Income margin performs well.
• The gearing ratio is 0 times, it is good if a company is under a low debt however, moderate leverage leads to better use of a company’s capital. (A good gearing ratio should be between 0.25 – 0.5).

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Top 10 tenants

AME REIT’s Pro Forma Gross Rental Income is well distributed within its portfolio of 28 tenants.

Industrial Properties

The top 10 tenants of the Industrial Properties by Occupied NLA contributed an aggregate of approximately 41.5% to the Pro Forma Gross Rental Income. The top 10 tenants occupy an aggregate of 57.4% of Occupied NLA of the Industrial Properties as at the LPD. The portfolio is as set out below:

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Industry Overview

The industrial property market in Malaysia is driven by positive economic development which corresponds to increasing business and industrial activities. Business owners can choose to purchase industrial properties, or rent/lease industrial properties for their business operations due to several reasons, such as:

• Adoption of asset-light business models which are common amongst foreign companies setting up manufacturing facilities or branches in Malaysia;
• Economic uncertainty such as during the Covid-19 pandemic, caused many business owners to be more prudent in spending and investment;
• Flexibility to cater to future business expansion when businesses require more space to house increasing business and industrial activities;
• Preferences in focusing their cash flow, time, and resources on growing revenue, rather than investing in industrial properties which may limit their financial capability to undertake future business opportunities that may arise.
• Difficulties in purchasing industrial properties due to insufficient capital or lacking an established financial track record to obtain bank financing; and
• Elimination of procedures in dealing with matters and costs associated with land and property purchases, taxes, security, and insurance as well as maintenance and repair of industrial properties.

The demand for renting/leasing of industrial properties has presented opportunities for investors and REITs to increase rental/leasing income by expanding their portfolio of industrial properties. The rental market performance of industrial properties in Malaysia is illustrated through the performance of selected REITs in Malaysia that carry industrial properties in their portfolio, namely Al-Salam REIT, Atrium REIT, and Axis REIT. The total rental income generated from renting/leasing of industrial properties by these 3 REITs increased at a CAGR of 11.59% from RM153.20 million in 2016 to RM265.06 million in 2021. Despite the adverse impact on many economic sectors and industries as a result of the Covid-19 pandemic, rental income generated from the renting/leasing of industrial properties by these 3 REITs recorded YOY growth of 10.20% in 2020 and a YOY growth of 8.33% in 2021.

During the same period, the average monthly rental/leasing rates by these 3 REITs increased at a CAGR of 3.51% from RM1.38 per sq ft in 2016 to RM1.64 per sq ft in 2021. In 2020, the average monthly rental rate recorded a YOY increase of 7.95% from 2019 despite the pandemic, demonstrating the resilience of the industrial property rental market against the pandemic. In 2021, the average monthly rental rate increased slightly at a YOY of 0.61%.

Moving forward, the demand for industrial properties including the demand from the rental market is expected to be driven by the recovery of Malaysia’s overall economic conditions. Following the transition into the endemic phase beginning on 1 April 2022, business and economic activities are allowed to operate as usual and international borders have reopened, which is expected to further drive the recovery of economic conditions in Malaysia. According to the latest Economic and Monetary Review published by BNM, BNM expects Malaysia’s GDP to grow within the range of 5.30% to 6.30% in 2022, supported by better Covid-19 management and higher vaccination rates as well as spill-over benefits from expansion in global demand. Further, the industrial property market will also be driven by continuous local and foreign investments received by the manufacturing sector and continuous demand for manufactured goods, which will then drive the growth of the manufacturing sector. The ongoing effects of the US-China trade war have led to some multinational companies diverting their expansions to countries in Southeast Asia, which may include Malaysia, from their original expansion plans in China, thereby increasing the foreign investment received in Malaysia. The GDP from the manufacturing sector is expected to grow by 4.75% in 2022 according to the latest economic outlook announced with the Budget 2022.

Additionally, the demand for industrial properties will also be driven by the thriving e-commerce activities whereby companies in the e-commerce and logistics industries strive to expand their operations and storage capacity by securing additional industrial properties. While Malaysia is transitioning into the endemic phase and the impact of the Covid-19 pandemic is steadily subsiding, consumers are expected to continue to practice online shopping as they have adapted to the lifestyle and convenience of online shopping. Thus, this behavioral shift is expected to continue to drive demand for e-commerce and subsequently sustain the demand for industrial properties.

Over the longer term, the demand for industrial properties in Malaysia, including the demand from the rental market, is expected to remain strong as industrial properties are essential for the operations of the manufacturing sector which constitutes a major component of Malaysia's economy.

Source: Smith Zander

The purpose of the offering

The purpose of the offering is as follows:

1. to provide the shareholders of AME an opportunity to participate in AME REIT directly through subscription of their entitlements as well as an opportunity to benefit from the potential future upside and envisaged growth of AME REIT;
2. to obtain a listing of and quotation for the Units on the Main Market to enhance liquidity as compared to the illiquid nature of the underlying Subject Properties;
3. to gain access to capital markets in order to raise funds for future real estate acquisitions; and
4. to provide investors an opportunity to invest in a REIT which provides stable distribution of income and potential capital appreciation on investment in the Units.

MQ Trader View

Opportunities

1. Stable financial results. The company revenue is growing and maintained at the same margin this shows that even though the company rental business is expanding they can still control the operating expenses.
2. Zero debt company. The company does not hold any debt, this will decrease the risk of the company becoming a defaulter especially since the BNM plan to increase the OPR rate will further increase the loan payment monthly.

Risk

1. The loss of third-party key tenants, a downturn in the business of Subject Properties’ key tenants, or any breach by the tenants of their obligations under their tenancy agreements may have a material adverse effect on the financial condition and result of operations of AME REIT. As at the LPD, the contribution of the top 10 largest tenants of the Industrial Properties, all of whom are third parties, based on their Occupied NLA to the Pro Forma Gross Rental Income across the Subject Properties is approximately 41.5%. Accordingly, AME REIT’s business, financial condition, the result of operations, and ability to make distributions may be adversely affected by the bankruptcy, insolvency, or downturn in the businesses of one or more of these tenants, as well as the decision by one or more of these tenants not to renew its tenancy.

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