REIT ASIAPAC
F E AT U R E
Fe a t u r e
MALAYSIAN REITS
STRUCTURE STRATEGIES TO
OVERCOME TOUGH MARKET
CONDITIONS
Longer-term, the establishment of the world’s first airport REIT will be
game-changer for the industry.
Malaysian Real Estate Investment Trusts, or M-REITs, may see an
increase in transaction volume in 2019 as some funds dispose
of properties to de-leverage and improve cash flow while others
seek acquisitions at a more attractive yield in an oversupplied
commercial real estate market . Meanwhile, market conditions in the property sub-sectors are
expected to remain challenging. “In the absence of major foreign
direct investment into the country or any major catalyst to boost
business spending and retail consumption. The Distribution Per
Unit (DPU) growth will likely remain flat,” says MRMA.
In 2018, M-REITs’ average return fell 5.9%, as unit prices
corrected downwards by 12.5%. The FTSE Bursa Malaysia KLCI
was down about 8%. The performance of M-REITs was adversely
affected by rising interest rates. Malaysia raised its benchmark
Overnight Policy Rate (OPR) by 25 basis points in January 2018.
While local rates were unchanged for the rest of 2018, rising
global interest rates caused investors to remain on the sidelines.
The US Federal Reserve raised rates four times last year. While robust tenant demand is seen for logistics and data
centres, one of the key risks in the market going forward is the
continued overhang in supply of office and retail space. Despite
the tough property market, Malaysian REITs are leveraging their
strengths to improve returns.
DIVESTMENTS
AmFIRST REIT says it is looking to divest some of its non-core
and low yielding assets as a strategy to optimize gearing level
and improve returns to unitholders. For the past few years,
AmFIRST REIT’s performance was impacted by declining income
distribution due to low occupancy at some of its properties and
high gearing level. However, during 2018, the company says
overall occupancy at its property portfolio has increased to close
to 90%, backed by new tenancies – particularly at The Summit
Subang USJ after major refurbishment. “The improved occupancy
of the property portfolio of AmFIRST REIT is expected to provide
strong support for higher net income and hence higher income
distribution to unitholders in the future,” says the company.
The top two performing M-REITs last year were Axis REIT
and Pavilion REIT, whose total return gained 9.4% and 7.1%
respectively. The top losers, measured by total return, were
CapitaLand Malaysia Mall Trust (- 37.9%), Tower REIT (-18.1%)
and AmFIRST REIT (-14.2%).
The outlook for 2019 is expected to be mixed. While the
underlying market fundamentals remain challenging due to
excess supply in various sub-sectors and softening economic
growth, sentiment will be supported by expectations for no
further increases in Malaysia’s OPR this year, says the Malaysian
REIT Managers Association (MRMA). Additionally, the pace of
global interest rate tightening is expected to slow as the US
Federal Reserve signalled that it is reaching the tail end of its
tightening cycle, says the association.
Petronas Tower, Kuala Lumpur Malaysia.
(Credit: Zukiman Mohamad from Pexels)
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With a softer retail market, Dato’ Hisham bin Othman, Executive
Director and Chief Executive Officer of Hektar REIT, says its
focus on setting up malls in suburban Malaysia has helped to
mitigate some of the negative impact. “Hektar’s differentiated
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