Atrium REIT

BHLB Trustee Sdn Bhd its former tenant – CEVA Logistics Snd Bhd - of its REIT, which occupied Atrium REIT’s Atrium Shah Alam 2 to court.

Atrium REIT announced that a writ summons filed at the Shah Alam High Court on April 2 2009 has been served on CEVA’s solicitors on April 14, 2009.

BHLB Trustee is seeking to avit CEVA from Atrium Shah Alam 2 and claim an unspecified amount of damages.

It is not immediately certain if CEVA has fully vacated Atrium Shah Alam 2, one of the four properties in Atrium REIT. According to announcement, CEVA had vacated 153702 sq ft of the net lettable area since Jan 31, 2009 will vacate the rest by March 31, 2009 two days before the writ summons was filed.

The good news is that the trustee is talking active action to rectify the situation at Atrium Shah Alam 2. On March 2009, the REIT managers said negotiations with a shortlisted prospective tenant to take up the whole premises are in the advanced stages and the new tenancy is expected to commence at the end of 2Q2009.

Since Aug 2008, Atrium REIT Managers had mentioned in its interim report that CEVA was occupying the Shah Alam 2 premises on a monthly contractual basis. This only became clear following the announcement on March 5, 2009 that 86.9% of Atrium Shah Alam 2 had been leased out on a monthly to CEVA for over 1 ½ years. Interestingly, the tenancy agreement expired between July 14 2006 and July 31, 2007.

By March 5, 2009, it was already one month since CEVA had vacated 59% of the space it was occupying. On March 17, 2009 Atrium Managers said that it had initiated many rounds of negotiations with CEVA since the expiry of the tenancies, with hopes of renewing the expired tenancies on a long term basis, but to no avail. Hence it had no choice but to evict VECA.

The expiry dates were disclosed in Atrium REIT Managers’ initial public offering prospectus dated Feb 28, 2007. But is it the expiry of such tenancy agreements a material information that needs to be highlighted to unitholders.

This is given that it is via the signing of long term agreements that the risk of single tenanted properties of a REIT is mitigated.

The expiry of the three of four tenancy agreements at Atrium Shah Alam 2 was only indicated in its 2007 annual report. Still what the Atrium REIT managers said was that the tenancies for 224704 sq ft will be expiring on March 31, 2008 and went on to add that there is confirmation in writing to extend the tenancies to between Dec 31, 2008 and Dec 31, 2009.

Atrium REIT Managers in its March 17 2009 announcement, did not say when it began actively sourcing for a new prospective tenant in anticipation that CEVA may move out.

CEVA has relocated to its new headquarters in Bkt Jelutong, Shah Alam. Atrium REIT Managers’ substantial shareholder, Glory Biltz Industries Sdn Bhd, was reportedly to be the entity which would be building CEVA’s RM60 million new warehouse that was ready in 2009.

Atrium REIT Managers had, in its prospectus, warned investors of the potential conflict on interest pertaining to future acquisitions and competition for tenants between itself and Glory Blitz, which is principally a property investment holding company.

This is where the role of REIT’s trustee comes in. Trustees being custodians of the assets in a trust, are required by law to actively monitor the administration of a REIT by the management company to ensure that the interest of unitholders is upheld at all times.

Financial Results …

Real estate investment trust Atrium REIT attributed its higher-than-expected after-tax income for its financial year ended Dec 31, 2008, primarily to the revaluation of its property holdings.

Atrium announced an unaudited after-tax income of RM17.11 million for FY08, which is 69.4% higher than its forecast of RM10.1 million. The positive deviation of RM7.008 million representing 69.4% between the projections and unaudited results were contributed mainly by revaluation surplus gained from the revaluation of the investment properties of RM6.8 million and net savings in operating expenses.

Savings in operational expenses accounted for the remainder of the deviation.