Interview with AmFIRST REIT CEO and Head of Finance

by ChingFoo Lieu on 28/01/2013

When I emailed the CEO of AmARA REIT Managers, (the manager of AmFIRST REIT) Lim Yoon Peng directly requesting an interview, it was a shot in the dark (Just for the record, I’ve only seen Axis REIT CEO and AmFIRST REIT CEO list their email publicly in their websites. Both happen to be the Chairman and Vice Chairman of MRMA – Malaysian REIT Managers Association). But he promptly replied, together with AmFIRST REIT Head of Finance, Chong Hong Chuon. Chong invited me to AmFIRST office, but I couldn’t make it because I am based in Penang. This is partly because of the questions I forwarded to AmFIRST beforehand – let’s just say, some of them can’t really be explained properly in an email. So what followed was a one hour interview and friendly banter over the phone, which was an absolute pleasure with a fair share of humorous remarks that will never see the daylight :) . Then the 2 top executives took an effort to tidy up the interview draft – something I appreciate much. The intention is to convey the right message to investors like you and me.

This is something I strive to deliver too in the M-REIT online educational course I co-founded with KCLau.com.  Proper methodology in REIT investing which will help you make better decisions.

Another thing to note. You see, I am just small fry, but their effort to cater to my interview requests speak volumes about the transparency and AmFIRST commitment in investor relations.  Now, this is not a recommendation or invitation to buy or sell, but purely an informative interview, direct from the table of the REIT Manager of AmFIRST.

Some of my questions for them include – the acquisition of Jaya 99 in Melaka, the 2012 rights issue, tenants trade mix management strategy and AmFIRST rebranding exercise. Here are the outcome of the interview.

Jaya 99 acquisition

  • Signed the SPA on 16 August 2012 for Jaya 99 (Melaka) for purchase consideration of RM 86 mil and this was 100% funded by bank borrowings, post the rights issue
  • Contributed additional DPU of 0.28 cents (on annualized basis based on 686 million units x 0.28 cents per unit = RM 1.9m);
  • Based on Net Property Yield, this translates to about 7% which is commendable for this new investment grade commercial office building in Melaka.

AmFIRST YP Lim interview

CEO, YP Lim
Lim Yoon Peng, Chief Executive Officer

Lim Yoon Peng was appointed as Chief Executive Officer of Am ARA on 15 August 2008. He is responsible for the strategic direction, investment objectives and operations of AmFIRST REIT. Prior to joining Am ARA, he was the Chief Financial Officer of Axis REIT Managers Berhad, responsible for the finance and risk management functions including business and investment strategies, regulatory compliance, acquisition analysis as well as capital management.

He has over thirty (30) years of extensive financial management and accounting experience in various multinational companies from UK, Australia and Malaysia. He spent four (4) years as the Financial Controller cum Company Secretary of Victoria Investment and Properties Pty Ltd, a group of companies involved in property investment and development in Melbourne, Australia before returning to Malaysia in 2005.

Being one of the pioneers in Malaysian REIT industry, he was a speaker at a number of regional and international REITs conferences.

He is a Fellow Member of The Chartered Association of Certified Accountants, UK and a Member of the Malaysian Institute of Accountants, and Fellow Member of Certified Public Accountant Australia. In September 2007, he was featured to write an article on REITs in ACCA Focus, a publication for Association of Chartered Certified Accountants (“ACCA”) Malaysia, as one of the 50 Chief Financial Officers, whom are ACCA members from many organisations across different industries and borders. He is also the Vice-Chairman of the Malaysian REIT Managers Association.

Rights Issue

  • Rights issue completed on 7th of August, which raised total proceeds of RM214 mil – utilized to pare down the gearing from 45% to 28% to create additional headroom for the Fund to grow with new yield accretive acquisition.
  • The rights issue also enhance the liquidity and marketability of the Units with Units in circulation post rights issue gone up from 429 mil to 686 mil
  • The Rights Issues also provide entitled unitholders with an opportunity to subscribe for new Units at a discount to the prevailing market price and hence, mitigate dilution of the unitholders’ unitholdings in the Fund

Why rights issue instead of private placement?

  • Before the rights issue, the gearing of AmFIRST was 46%, close to the threshold of 50% of Total Assets. The Fund requires a sizable equity fund raising exercise to reduce the gearing to a more meaningful level so as to create  sufficient headroom for the Fund to grow its investment portfolio particularly commercial properties have substantial transaction values;
  • Under the REITs Guideline, a REIT is allowed under a general mandate to issue up to 20% of its existing fund size. This would only allow the Fund to raise a maximum of RM103 million (assuming no discount on issue price) to repay borrowing. The gearing ratio will not be reduced significantly (i.e. to 37.2%).;
  • A private placement would be in favor of selected placees (who may or may not be existing Unitholders) with the discount of not more than 10%. Furthermore, the existing Unitholders’ unitholdings in the Fund will be diluted after the completion of the substantive placement exercise;
  • On the other hand, a rights issue will allow all existing unitholders to participate in the Rights Issue on a pro-rata basis and hence mitigate dilutive impact of the Unitholders’ unitholdings in the Fund.
  • Therefore, the management is of the view that rights issue is more equitable to the existing unitholders as it provides all unitholders with an equal opportunity to subscribe for new rights units at a discount to the prevailing market price while at the same time, will also enable the Fund to raise the adequate funds needed.

In a nutshell, ‘equity funding’ is able to accelerate market capitalization expansion and thereby, create greater liquidity for the REIT and this in turn would eventually generate more investor interest. Secondly, the REITs which are able to capitalize on equity funding now would have a strong first-mover advantage when it comes to future asset acquisitions. Notwithstanding this, investors generally prefer lowly-geared companies during times of uncertainty.

AmFIRST Chong Hong Chuon

Head of Finance, Chong Hong Chuon

Chong Hong Chuon, Head, Finance

 Chong Hong Chuon was appointed as the Head, Finance of Am ARA on 9 May 2011 and is responsible for the full spectrum of financial matters relating to AmFIRST REIT and this includes financial and management reporting, capital management, treasury and risk management. He is also the designated Compliance Officer for all statutory and regulatory matters.

 He began his career in the auditing field and has fifteen (15) years of extensive financial and management accounting experience. Prior to joining Am ARA, he was with Hong Leong group where he was involved in property investment and management division. His last position was Group Financial Controller of GLM REIT Management Sdn Bhd, the Manager of Tower REIT, where he was responsible for the financial and compliance functions including providing financial leadership on performance review, business planning and forecast as well as devising capital and risk management strategies. In addition, he was actively involved in the evaluation of acquisition opportunities, asset management and investor relations.

 He holds a Master of Science in Financial Management from The Robert Gordon University, UK and is a member of the ACCA, UK and Malaysian Institute of Accountants.

 

Tenant trade mix management strategy: Pros and cons of Properties with diversified tenants (Wisma AmFIRST, etc) and properties with single tenant (Prima 9, 10).

Close to 50% of AmFIRST’s investment properties are tenanted by its sponsor/parent company, AmBank Group. With this anchor support we can expect resilient earnings and occupancies generated by AmFirst REIT.

There’s always counterparty risk but REIT managers seek to minimize this by selecting established and reputable tenants. Usually once a tenant has committed to a space and the premises are well maintained it is unlikely they will make a decision to move out upon the lease expiry due to relocation costs and disruption to its staff travel logistics – Hewlett Packard Multimedia Sdn Bhd at Prima 9, Cyberjaya who had just renewed its tenancy for another 3 years. Also RBC Dexis Investors’ Service has committed to a 5 years lease at Prima 10 with a further 5 years renewal.

Additional points

Rental for related party tenancy is arrived based on independent market rental rates by independent valuers. This speaks volumes about the transparency of the REIT industry.

What is the importance of AmFIRST REIT rebranding exercise by rename for many of its assets (most recently being Kelana Brem Towers)?

Renaming or branding some of the building owned by the Fund is  to reflect a consistent identity & ownership among all assets under a REIT. It projects a higher professional image and credibility, which helps in marketing to potential tenants. Tenants come in knowing that the building is owned by the fund and run by professional REIT manager.

See my previous interview with Axis REIT CEO cum Chairman of MRMA, Dato’ Stewart LaBrooy here

{ 11 comments… read them below or add one }

CT February 3, 2013 at 5:38 pm

CF, I’m still new to REIT. Is it consider undervalued for its price trading below its NAV? Why office building considered as cyclical nature, as the office business cannot sustain during economic downturn? I noticed that normally EPS is higher at 4th quarter for some REIT counter, why is it so?

Reply

LCF February 4, 2013 at 7:37 pm

Yes, on the surface. It is due to oversupply situation in general

Reply

Carina Lee January 30, 2013 at 11:01 pm

Having read your article, I was surprised to discover that the AmFirst REIT is currently trading below its NAV (REIT price – 1.06 vs NAV – 1.19). I took a quick look at its corporate presentation and financial statements for financial period ended 30 Sept 2012 and discovered that:-
1) Its portfolio consists of mainly office buildings – more cyclical in nature and market segment may be challenging;
2) The occupancy rates of 2 of its buildings, Menara AmFirst and Wisma AmFirst are on the lower side of 71.3% and 71.0% respectively;
3) Distribution per unit 3.16 for the 6 months period. If you extrapolate this you will get a yield of 5.96% at current REIT price of 1.06. After 10% withholding tax, it’s 5.37%. Decent, but perhaps no fireworks?

Reply

LCF February 3, 2013 at 1:38 am

Well researched, Carina. The price was such partly due to the rights issue. Yes, cyclical for office buildings, I have the same thoughts as yours too but most of its prime assets are occupied by the “big brother”, namely AmBank. Second point, you are right on that too, but then I go further and found out that the combined NPI of these 2 assets, about 8.3 mil, is only about 13% of the total NPI of 66 mil (2012 annual report). Thirdly, as you say, no fireworks but it would be fairer if we don’t extrapolate it for this case because we have yet to see the DPU contribution from Jaya 99 in the next 6 months. It would be marginally higher than our extrapolation in this case :)

Reply

Ckl June 28, 2013 at 12:16 pm

3.16 is first distribution. You need to see how many distribution there are on a yearly basis. As of now, Amfirst distributed 3.16+3.16+3.65=9.97 cents. That’s 3 times per year. And that translates into a 9.5% yield per tax.

Reply

ChingFoo Lieu July 4, 2013 at 11:49 am

Well said Ckl

Reply

TY January 29, 2013 at 9:58 pm

CF, Thanks.Do you recived my email dated 24-Jan?

Reply

LCF January 29, 2013 at 10:32 pm

Hey TY, you mean the one you said meeting after CNY? I did reply you, did you get it?

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TY January 30, 2013 at 5:51 pm

CF, sorry i didn’t recived the email. Please resend it again. Thanks

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LCF January 28, 2013 at 9:21 pm

Hey TY, sure, coming soon. Thanks! And more details of course in the REITMethod members’ area for members like yourself :)

Reply

TY January 28, 2013 at 9:18 pm

CF, good info on AMfirst REIT.Good job.
If you can , post AMfirst REIT Asset portfolio & lastest key finance indicator from annual report .This will help up to understand this REIT, one of the oldest listed “property trust”.

Reply

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