Atrium REIT:-

Recently, Atrium REIT (real estate investment trusts) though among the smallest in terms of market capitalisation (RM130mil), has in the past several months been enjoying quite a bit of the limelight.

Comments from AmResearch:-

• Atrium yield is comparable with the larger REITs and probably by virtue of its size and focus, it is probably also more pliable and dexterous;

• Atrium REIT’s focus is in logistics warehousing, a service industry that complements the country’s export-oriented industries. Other REITs have their focus on retail, commercial or office rental business.

• Atrium manages its business. The Reit deals with MNCs, not just anyone. Most of their tenants are from the Fortune 500 list.

• Their rental agreement is between five to six years which spells stability.

• Most of the places where their properties are sited are very strategic. Other than this recent purchase, most of their properties are freehold.

• Recently, Atrium has entered into a sale and purchase agreement to buy an industrial building at Senai Industrial Park for RM12.5mil cash. This acquisition will raise its total asset size to RM171mil from RM158mil. Rent is locked in for the next five years with multi-national company Flextronics Technology (M) Sdn Bhd until 2011. They have the option to renew that tenancy for another five years,The property sits on seven acres of leasehold land expiring in 2054. Based on the annual gross rental yield of 9.6% and having considered the incremental property and non-property expenses and higher borrowing costs, the acquisition is expected to raise its financial year 2008 dividend per unit by 5% to 8.7 sen from 8.3 sen previously. The acquisition will increase the gearing ratio to 33% from 28% currently.

• The Reit can afford another acquisition to the tune of RM55mil before hitting the 50% gearing limit [Atrium will not be exceeding a gearing level of 40%.]

• By the end of 2008, Atrium is expected to have additional RM229mil worth of acquisitions to more than double its asset size to RM450mil.

• Besides its recent acquisition in Senai, Atrium’s assets are located in Shah Alam, Puchong and Rawang. The growing trend of outsourcing of logistic services will boost Atrium’s income. It is estimated that third party logistics (outsourcing of the logistics component by MNCs) is expected to grow to US$28bil in revenue by 2012 from US$15bil last year. The market in Malaysia is expected to be worth US$3.5bil in 2007 (2006: US$3.3bil).

Property Prices & Oil Factor:

The overall increase in property prices in the country in all sub-sectors of property, also bodes well for the REIT business. Rising property prices usually parallel rental yield. The oil factor is another element. Oil prices have hit the unprecedented US$90 a barrel. This will have a domino effect across all sectors of the economy, from transport to building raw materials. With cost of construction expected to rise further, property prices are expected to move up, hence the importance of having solid assets.

(The Star Malaysia 27/10/07)

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