Al-hadharah Boustead Reit

REIT makes up a really big part of my portfolio. I love the simplicity of the investment that have predictive earning and a stable dividend payout. It's a business I can totally comprehend. You can be part owners of shopping mall, hospital, office buildings, factories, warehouse or whatever. You don't have to deal with the tenants - just collect your "rent".

 In Malaysia, I went a different route and chose to invest an oil palm REIT - Boustead REIT back in May 2011.

Boustead REIT is pretty unique, it's got a fixed rent, just like any other rental agreement and a "performance based profit sharing" based on a formula (tied to realised CPO price over reference price less certain direct cost).

Extracted from Annual Report 2007

Over the years, this performance based rent has made up on average 30% of the rental income and offered a nice boost to the base rent offered on the plantation.

In fact, Boustead REIT used to make up more than 50% of my Malaysia portfolio until the recent correction of CPO price.

Going forward, with the increase CPO production both in Indonesia and Malaysia, I  am not sure where the price of CPO is heading. Every plantation company seems to be talking about increase production, planting, and boasting about the size of their immature hectarage. I can certainly see the increase in supply, but the demand side is not so clear. I did not analyse the exact figure but the built up in stock figure illustrated above is a cause for concern. In the long run, labour shortage will be a cost killer for plantation. Despite all the automation, oil palm remains a very labour intensive activity.

I started closing my Boustead position back in September leaving about a quarter of my initial investment. Recently with the rebound in CPO price I did a rough computation of potential earnings rolling forward.

Rationale for estimate

Fixed rental income is pretty predictable, although some lease agreement is due for renewal next year - with potential for upward revision, I've assumed flat RM17.3M/quarter or RM69M/annum.

Performance based rent - the reference price has been moved from RM1,500 to something higher recently. Based on the last annual report, this reference price is not disclosed, the last disclosed reference price is RM 2,000 - I've assumed that this is the reference price but given the unpredictable nature of CPO price, I've assumed performance rent would be used to cover fund's overhead/interest and any remainder would be ignored as margin for error.

Extracted from Annual report 2011

Based on my EPS of 11 cents and Dividend of 10 cents, I reckon the fund is fully valued. It's trading at close to 20 PE (but with little downside with growth potential) and a dividend yield of 5%. Not terribly exciting. It's trading at close to PB too.  

I don't have much position left here, and would probably hold on to it given the low downside or unless I find something with a better risk adjusted return. 

There's no direct comparison for this REIT, but based on MREIT data it's trading at a discount over retail REIT but premium over everything else. 

That does sound pretty fair.