With The Curve NX and the Royale Bintang Damansara hotel slated for completion in the burgeoning Mutiara Damansara commercial centre in Petaling Jaya later this year, Boustead’s property portfolio in the prime area may be reaching a tipping point.
At the same time, its Klang Valley land bank, particularly in Mutiara Damansara, is diminishing.
Analysts said a potential REIT exercise would help Boustead unlock the substantial value of its investment assets and, at the same time, raise funds for replenishinh its land bank.
Furthermore, the conglomerate’s controlling shareholder, Lembaga Tabung Angkatan Tentera (LTAT), is widely rumoured to be close to clinching two major land privatisation deals in prime areas of Kuala Lumpur — 60 acres in Jalan Cochrane and the 245-acre Batu Cantonment army base on Jalan Ipoh.
As LTAT’s flagship vehicle, analysts said they expect Boustead to play a role in acquiring or developing these two plots of land.
Analysts see the possible land acquisition and Boustead’s own undemanding valuations as potential re-rating catalysts for one of Malaysia’s oldest conglomerates.
The Curve mall is among Boustead’s property holdings in Mutiara Damansara.
The establishment of a property REIT could be another feather in its cap.
Long viewed as sleepy, asset-rich Boustead is transforming itself into a dynamic conglomerate with rising profitability and dividends.
It offers wide-ranging exposure to many facets of the Malaysian economy -- including finance, plantations, and property -- at a reasonable price, says an analyst, noting that the stock is under-researched.
For FY2010 ended Dec 31, the company saw net profit surge 57.3% to RM537.5 million, with earnings per share (EPS) of 57.5 sen. At last Friday’s closing price of RM5.38, the stock is trading at a historical price-to-earnings ratio (PER) of 9.4 times, and a forward PER of 8.8 times for this year based on consensus forecast EPS of 61.3 sen.
With net assets per share of RM4.50 as at Dec 31, its price-to-book ratio of 1.2 times is also undemanding, says the analyst, adding that its underlying property assets have not been revalued for a long time and its stake in banking group Affin Holdings Bhd has appreciated.
Boustead is also shaping up to be a high dividend yielding stock, with dividends of 39 sen declared so far for last year, up from 27.5 sen in 2009. This translates to a dividend yield of 7.2%. The company had in February this year announced a dividend payout policy of a minimum of 70% of net profit starting this year.
Based on consensus EPS forecast of 61.3 sen, this implies potential dividends of 42.9 sen, or a generous 8% yield.
Boustead’s commercial property assets are rapidly gaining prominence, backed by a large portfolio of properties that include shopping malls, office complexes and hotels in downtown Kuala Lumpur, Mutiara Damansara, Seremban, Negri Sembilan, and Penang.
In Mutiara Damansara, The Curve NX will increase the number of car parks in the commercial centre by 700 bays and at the same time house KidZania, a 80,000 sq ft theme park. The 300-room four-star Royale Bintang Damansara is expected to feature a conference hall with seating capacity for 1,000 and indoor ice-skating rink when it opens.
After seven years of operation its flagship The Curve mall now has an impressive tenant mix coupled with high shopper traffic in the region of 22 million last year.
In Mutiara Damansara, Boustead holds properties such as The Curve, e@Curve, Menara UAC and Royale Bintang Curve.
According to the group’s 2010 annual report, The Curve and e@Curve have book values of RM434.2 million and RM143.1 million, respectively, while Menara UAC and Royale Bintang Curve have book values of RM78.3 million and RM38.8 million, respectively.
The Mutiara Damansara assets were last revalued in 2010, except for Royale Bintang Curve, which was revalued in 2005.
In the city centre, the group has two commercial buildings along Jalan Raja Chulan -- Menara Affin and Menara Boustead -- with book values of RM129.5 million and RM125.2 million, respectively. While Menara Affin was revalued in 2010, Menara Boustead was last revalued in 2001.
It also owns the four-star Royale Bintang Kuala Lumpur with a book value of RM102.4 million (last revalued in 2003) and the RM85.4 million (revalued in 2010) 183 Ampang resort-style condominiums on Jalan Ampang.
Other notable properties include the 41.2ha University of Nottingham Malaysia Campus in Semenyih, which has a book value of RM160.5 million (last revalued in 2003), as well as several commercial properties in Penang and Seremban.
The book values of the properties mentioned add up to RM1.3 billion, which could be the potential value of the REIT should Boustead choose to explore that path.
On the property development side, Boustead has only 14.31 acres of development land left in Mutiara Damansara. The land has a book value of RM137.3 million or RM220.26 psf.
The group’s main development land bank is in Mutiara Rini, Skudai, Johor, where it has 356.16 ha. The leasehold land was last valued in 1995 at RM144.5 million, which implies a book cost of RM3.77 psf.
An industry insider says Boustead, which owns a number of properties in the Golden Triangle of Kuala Lumpur, could ride on the re-valuation of its property and land value with the proposed Klang Valley mass-rapid transit project.
He says the number of REITs that are trading at a premium to their net asset values per share is increasing, noting that REITs can now afford to raise capital to purchase assets without diluting unit holders.
“Most REITs have recovered from the global financial crisis and have yielded higher returns in a short space of time as commercial real estate generates a huge amount of cash flow from rent,” says the industry insider, adding that Boustead’s profit from its property division climbed to RM139 million in 2010 from RM106 million the year before.
Another analyst notes that REITs, supported by yields, are increasingly trading above book value while smaller property stocks find it hard to reach book value.
“It is not impossible for Boustead to have a REIT for its properties since the wider group (including parent LTAT) may have plans to develop certain prime land in KL,” notes the analyst, referring to the Jalan Cochrane and Jalan Ipoh land.
The analyst points out that Boustead also has experience in setting up REITs, having established Al-Hadharah Boustead REIT, which was the first Islamic plantation-based REIT in Malaysia.
As to the possibility of injecting its property assets into Al-Hadharah Boustead REIT, the analyst says: “Investors generally prefer not to have all kinds of assets under one REIT. They do not want something that it too jumbled up, but rather a focused REIT that can expand asset value.” He adds that the current average yield of REITs is slightly above 8%.
She says Boustead has the potential for a property REIT as it could rely on a variety of buildings and prime locations, especially in the city centre and Mutiara Damansara area, to add value.
The analyst also says that, while minority shareholders of Boustead benefited from the de-listing of Boustead Properties Bhd several years ago, the property division is still developing and expanding its portfolio of assets with yield-accretive potential.
“The group now has better prospects to fund more property via a REIT rather than internally generated funds. After all, it already has assets that offer potential for higher net lettable area,” she says.
On the other hand, another analyst familiar with the stock says Boustead might want to consolidate all its properties and separate them into different holding companies, rather than putting them all together and listing them as a REIT.
“There is a potential for Boustead to unlock the value of its properties and land, but to list them as a REIT, it’s not going to happen anytime soon,” he says, adding that over the longer term, Boustead might reconsider listing its property arm again.
Meanwhile an analyst with ECMLibra Investment Research says Boustead might also not include all its properties into a REIT listing as they are still waiting for the properties to mature.
“Their properties such as The Curve and e@Curve are still not fully rented, thus, they might want to wait until the properties to become mature before considering a REIT,” she says.
“Relisting the property arm could give more value to Boustead, as they seek to expand their properties and land area to add more value to the group as a whole,” the analyst says.
She notes the group has not hinted of plans to unlock the value of the properties via a listing, stressing the group had done it before, but then later took the property arm private again in 2008.
“We welcome the government’s initiative to improve connectivity in the form of a mass-rapid transit system, which we believe will benefit Mutiara Damansara and increase shopper traffic to this part of the Klang Valley,” Boustead says in its outlook for the property division in its latest annual report.
The group also says it is constantly on the lookout for land and looks forward to the government’s development plans for transforming the Greater Kuala Lumpur/Klang Valley into a world-class metropolis.
Boustead added four sen to close at RM5.38 on turnover of 285,700 shares Last Friday. The counter traded to a 52-week high of RM6.14 on Feb 9, and a low of RM3.42 on March 23, 2010. - by Yong Min Wei & Kamarul Azhar of theedgemalaysia.com
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