AmanahRaya REITs | Are REITs in transition?

Under normal circumstances, Real Estate Investment Trusts (REITs) are considered stable investments. So why is this AmanahRaya REITs (ARREIT, 5127) being labeled as "transforming" today?

When looking at the price chart of this REIT, you can basically see that ARREIT is showing a significant downward trend, with the company's NTA showing a considerable difference compared to last week's share price, at a discount of about 75.20%.

However, at the same time, ARREIT's dividend yield is only 1.14%. So why, despite owning so many properties, is the profit and dividend distribution capability decreasing?

#Industry Overview

Based on existing data, ARREIT has a total of 11 properties, covering office spaces, retail outlets, education, hotels, and industrial properties; undoubtedly making ARREIT a diversified bond REIT.

Although it owns many industries, due to the industry being too scattered, it has not gained many advantages in management, and operation is not easy either. Therefore, as everyone can see, ARREIT has been continuously selling industries recently to integrate the company's industry portfolio.

For example, in June 2024, ARREIT sold the Contraves (office building) property located in Cyberjaya for RM42.5 million, and before that, they also completed the sale of the Holiday Villa Beach Resort and Spa Langkawi for RM145.0 million.

In addition to these properties, ARREIT's top 3 performing properties include SEGi University in Kota Damansara, HELP University in Jalan Samantan, and Alfa University College in Subang Jaya.

The reason these properties are considered 'good' is because they are generally leased in the form of Triple Net Lease; simply put, when ARREIT collects rent, it has already deducted the property's taxes, insurance, and maintenance costs, shifting most of the risk to the tenants.

Of course, Triple Net Lease leases generally have longer terms, and the rent is relatively cheaper. The advantage is that they do not require too much time for management.

In addition to the mentioned properties above, ARREIT also owns Vista Tower (office building above Intermark), Dana 13, Dana 1 Commercial Centre, Wisma Comcorp in Shah Alam, IHT Rehabilitation Centre ('IHT') in Glenmarie, RHF Store Factory in Nusaya, Salayang Mall, and Ex-Holiday Villa in Alor Setar.

The above properties may seem overwhelming, and readers do not need to memorize them specifically. However, as understood personally, because the major shareholder of Comcorp changed recently, the rental rate of ARREIT's Wisma Comcorp was affected, while Vista Tower has rebounded to over 60.0% from less than 40.0%.

Furthermore, it has been heard that ARREIT intends to sell Dana 13 and Ex-Holiday Villa properties.

But after selling so many industries, what are the next development directions for ARREIT?

#FutureDirection

Next, ARREIT will move towards three industry directions, the first one being what we just mentioned with Triple Net Lease, focusing on education tenants (due to the difficulty of changing Campus, so tenant stickiness is high), the second is the industrial industry with currently high market demand, and the third is medical and health "Wellness".

Just now we saw that one of ARREIT's tenants is IHT, and IHT is a partner of PERKESO (SOCSO). Currently, IHT is also expanding their number of rehabilitation centers, and it is not ruled out that they will cooperate with ARREIT in the future.

In short, this REIT changed its management not long ago, and now it is "changing blood" for the industry, continuously selling and buying properties. As for whether they will succeed, it remains unknown, but fortunately their leverage ratio is not high, at about 42.19%, leaving room for financing.

So, how do readers view ARREIT's transformation, do they have confidence in their successful transformation?

Photo Source: The Edge

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