9 Things You Must Know About Tower REIT

Tower REIT was established on 21 February 2006 with an initial portfolio of two commercial properties: Menara HLA and HP Towers. Subsequently, the REIT has acquired Menara ING on 27 March 2007 for RM 75.0 million. Ever since, Tower REIT has been deriving income from three properties until the year 2015 when it disposed of Menara ING for RM 132.3 million. Presently, the REIT retains both Menara HLA and HP Towers in its portfolio.

In this article, I’ll list down 9 key things that you need to know about Tower REIT before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: TWRREIT / KLSE: 5110
Market Capitalization: RM 342.2 million (12 January 2018)

Share Price: RM 1.22 (12 January 2018)

Industry: Reit

Syariah Compliant: Nope

#2: The Business

Here are the details of Tower REIT’s properties:

1. Menara HLA
   Menara HLA is a 32-storey office building with a 4-level basement car park located at Jalan Kia Peng, Kuala Lumpur. In 2016, Menara HLA was appraised at RM 340.0 million in market value. The office building has reported a 69% occupancy rate in 2016. Its key tenants include TWM Corporate Services Sdn Bhd, Hong Leong Investment Bank Bhd, Lundin Malaysia B.V., Malaysia Blue Ocean Strategy Institute and Total E&P. Combined, they occupied 40% of the total net lettable area (NLA) of Menara HLA.
   
   
2. HP Towers
   HP Towers consists of 2 blocks of 9 & 21 storey office buildings with 3-level of connecting podium & 4-level of basement car park located at Bukit Damansara, Kuala Lumpur. In 2016, HP Towers is valued at RM 219.0 million. It has reported a 66% occupancy rate with tenants such as Hewlett-Packard (M) Sdn Bhd, GuocoLand (Malaysia) Bhd, ValueCap Sdn Bhd, and TBWA Kuala Lumpur Sdn Bhd. Collectively, they occupied 52% of the total net lettable area (NLA) of HP Towers.

#3: The Financials

Tower REIT has reported a continuous decline in sales and realized earnings over the last 5 years. This is due to a gradual decline in occupancy rates from Menara HLA and HP Towers during the 5-year period and the disposal of Menara ING in 2015. Distributions per Unit (DPU) had dropped from 11.52 sen in 2012 to 6.93 sen in 2016.

Source: Annual Reports of Tower REIT

Source: Annual Reports of Tower REIT

#4: Major Acquisitions

As at 30 September 2017, there is no announcement or proposal of any major acquisition or disposal of investment properties by Tower REIT.  

#5: Lease Profile

As at 31 December 2016, Tower REIT has derived income from 42 tenants. Out of which, the 5 largest tenants had accounted for 34% of its gross rental income. These tenants include:

 

No.	Major Tenants	Sector	% of Portfolio’s NLA
1	Hewlett-Packard (M) Sdn Bhd	IT	12%
2	TWM Corporate Services Sdn Bhd	Trading	7%
3	ValueCap Sdn Bhd	Finance	6%
4	Hong Leong Investment Bank Bhd	Finance	5%
5	Lundin Malaysia B.V.	Oil & Gas	4%

A typical tenure of the tenancy is three years. The following is the expiry profile of the portfolio of Tower REIT.

Source: Annual Reports of Tower REIT

#6: Valuation

As I write, Tower REIT is trading at RM 1.22 a unit.

As at 30 September 2017, Tower REIT has reported having RM 1.93 in net asset value a unit. Thus, its current P/NAV works out to be 0.63.

Tower REIT adopts a distribution policy to declare and pays out at least 90% of its distributable income on a half-yearly basis. For the 1st half of 2017, Tower REIT has paid out 3.20 sen in DPU.

If Tower REIT is able to maintain its DPU at 3.20 sen for the next 2 half yearly distributions, it would pay out 6.40 sen in DPU. As such, its gross dividend yield is expected to be 5.25%. For individual investors, it is prudent to deduct 10% withholding tax from 6.40 sen when calculating your net dividend yield, as such, I would expect net dividend yield to be 4.72%.

#7: Debt Profile

As at 30 September 2017, Tower REIT has RM 100,000 in long-term borrowings. It works out to be 0.02% of Tower REIT’s total asset value of RM 563.3 million, making it among the lowest geared REIT in Malaysia and Singapore at the moment.

#8: Investor Relations

For further enquiries or to request for additional investment information on Tower REIT’s Investors Relation matters, you may contact:

Telephone: 03-2164 1818 (Hong Leong Share Registration Services Sdn Bhd)

Website: http://www.tower-reit.com.my/contact.html

#9: Major Shareholders

As at 3 February 2017, the substantial shareholders of Tower REIT are:

– GLM Equities Sdn Bhd: 21.66%

– Hong Leong Assurance Bhd: 20.60%

– Asia Fountain Investment Company Ltd: 4.99%

– Yong Yoon Kiong: 4.99%

– Associated Land Sendirian Bhd: 4.78%

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