REIT ASIAPAC MAGAZINE REITASIAPAC 3Q 2018 ISSUE | Seite 8

REIT ASIAPAC
F E AT U R E
3. Wholesale funds aren’t new to Australia. What’s your
view of this strategy on which Vicinity is embarking?
technology positively and proactively. For example, our network
recognises more than 12 million unique devices per annum – i.e.
customers. As we learn more about these customers, we can
design products, services, store layouts, etc. to meet their needs.
For varying reasons, certain
assets may not suit the
requirements
of
being
listed, even though they
are intrinsically valuable. In
Australian REITs, for example,
the assets most highly valued
by the public markets exhibit
low yield but high growth. By
contrast, high-yield but lower
growth assets, often neighbourhood or sub-regional assets, may
not sit comfortably in a publicly listed company whose portfolio
isn’t focused on this segment of the market. We probably have
about 20% of our portfolio in that category of very good assets
that are undervalued by the public markets. So we want to find
a way to keep those assets under our control but to bring in
partners to co-own them alongside Vicinity. Hence the rationale
for a wholesale fund.
We probably have
about 20% of our
portfolio in that
category of very
good assets that are
undervalued by the
public markets.
All of that being said, we know that retailers and consumers
still value the physical experience and want to engage with
brands directly. Our focus is on ensuring Vicinity continues to
create market-leading destinations for shopping, dining and
entertainment.
...it is harder for Amazon in Australia
than in other countries, with higher
labour and transport costs, and as
we discussed earlier, challenging
infrastructure and vast geography.
Fe a t u r e
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While industrial facilities are in demand, the office, retail and
hotel sectors are in the doldrums.
R E TA I L E R S ’ W O E S
6. Vicinity was rated the number one retail property
company in Asia Pacific for sustainability (GRESB 2017).
What’s the thinking behind sustainability as a source of
competitive advantage?
The other comment I would make is we have very strong
asset managers, who are led more by an asset-management
mandate than a capital-raising mandate. There is scope for us
to go to market and create opportunity. We may be behind the
competition, but it is an area where we can play catch up very
quickly.
Integrating the corporate and sustainability strategy has been
a significant driver for Vicinity’s external recognition and has
allowed us to demonstrate our ability to generate long-term
returns for our investors.
4. Given your experience across Asia, would you be looking
to set up a pan-Asian wholesale fund platform?
One of our focus areas is climate change – that is, making sure our
centres are resilient to increasingly extreme weather events and
ensuring we have programmes in place to reduce our own carbon
footprint.
Potentially yes, but it likely wouldn’t be in the near term. We have
a highly competitive landscape in Australia, and we have a lot of
work to do to make sure that we grow our business to become the
market leader, which is our objective. However, once that task is
complete, we could then potentially look overseas.
We also derive operational benefits, including in energy
efficiency and waste management. Our recently announced on-
site solar program is Australia’s largest, with plans to invest about
A$78 million across our portfolio in two stages. This program
will protect us against volatile energy markets and significantly
reduce our carbon footprint while providing savings to our
tenants and a good ROI (Return on Investment).
5. What has been the impact of e-commerce and Amazon’s
entry?
Internationally, Amazon has led the way in meeting the service
delivery expectations of consumers. Customer expectations
include seamless integration of physical and digital shopping.
However, it is harder for Amazon in Australia than in other
countries, with higher labour and transport costs, and as we
discussed earlier, challenging infrastructure and vast geography.
Nevertheless, we know Amazon will invest heavily in establishing
its business here and has recently launched its Prime offer.
Targeted community investment also forms an important part of
our sustainability agenda. Extensive research told us that youth
disengagement and unemployment is a prevalent issue in the
communities in which we operate across Australia. It’s also an
issue that negatively impacts consumer and retailer experience,
but it’s one where we see ourselves being able to play a positive
role, as a large local employer both directly and indirectly through
our retailers and suppliers.
The challenge for both landlords and retailers is not to resist
the change but embrace it and figure out how to leverage digital
8
Amid challenges in the Malaysian real estate market, REITs in the country are
looking towards Prime Minister Mahathir Mohamad’s first budget since his return
to power for supportive policy initiatives.
Office supply in Greater Kuala Lumpur area is estimated at 123 million square feet
(sq.ft.) as at June 2018 with a projected 5 million sq.ft. of office space to be added
annually, bringing the total volume of office space to 145 million sq.ft. by 2022,
based on government data. Meanwhile, the country’s central bank has revised this
year’s economic growth to 5%, lower than its earlier projection of 5.5% to 6%.
“The short to medium-term outlook remains challenging in the absence of any
major catalyst to attract new demand to take up the supply,” says Chief Executive
Officer Jeffrey Ng of Sunway REIT. “For owners who are supported by strong
balance sheets, buildings may be converted to more productive use with higher
yields to overcome the vacancy in the office sub-sector. We also see the possibility
of more sellers in the market, especially for those who are suffering operating
losses with a need to de-leverage,” says Ng.
9
Separately, softer retail demand is
presenting a challenge for developers
and mall operators. The new government
introduced the Sales and Services Tax
(SST), replacing the Goods and Services
Tax (GST), starting September 1. The
GST was reduced from 6% to zero from
Jun 1 and the government has said
it may re-introduce the tax later. The
weaker sentiment has led Retail research
firm Retail Group Malaysia to revise its
2018 retail sales growth rate forecast
for the second time this year. Based on
its quarterly adjustments, it lowered its
projections for the country’s retail sales
growth for the year to 4.1% from a 5.3%
estimate released in June.
Yong Su-Lin, CEO of MRCB-Quill
Management Sdn Bhd, says the emergence
and popularity of e-commerce and
digital platforms have also added to the
challenges for the retail and hospitality
sectors.
Malls with strong management and in
established market catchments are likely
to continue to perform well. However,
“newer centres with less experienced
facility management teams may grapple
with initial low property yields and a
more extended gestation period before
achieving optimal occupancy and rental
rates,” says Ng at Sunway.