A New Avenue for Growth

REITs as a Viable Solution for Uncertain Markets

From left: Hoh Yoon Hoong, Adj Prof Maxshangkar, Hafidz Atrash Kosai Mohd Zihim, Zulhilmy Kamaruddin, Sr. Haji Fakru Radzi Ab Ghani, Hidayah Hassan, Wan Azman Ismail and Yee Wing Peng were part of the panel discussion at the PKNS National C-Level REITs Conference.

As Malaysia moves forward with renewed aspirations to become a high-income nation by 2030, the prospects of wealth creation and distribution is now more important than ever. In an uncertain property market outlook, Real Estate Investment Trusts, more commonly known as REITs, present a hopeful solution as a defensive strategy to generate income, for individual investors as well as the public and private sectors.

Attracting nearly 200 participants from various segments of the property investment industry, the inaugural PKNS National C-Level REITs Conference was held at Dewan Aster, PKNS Headquarters in Shah Alam on
26 February. The event was hosted by Selangor State Development Corporation (PKNS), and organised by PKNS Real Estate Sdn Bhd (PREC) with the IBR Asia Group.

As part of its CEO, Datuk Mohd Azizi Mohd Zain’s vision of PKNS becoming a driver of REITs thought leadership, the conference aimed to be a platform that motivates more entry into REITs market, especially among its counterparts from other states, with Selangor leading the way.

International Business Review brings you the highlights of the event which cultivated high-level discussions on the strategies, potentials and promise of REITs in Malaysia.

The Conference kicked off with a speech by Norita Mohd Sidek, the Chief Operating Officer of PKNS as host for the event. In light of the challenging property market outlook, she urged property developers and management companies to search for other means of generating income, and for REITs to be seriously considered as a viable alternative to the pure physical property market.

In his keynote speech, Prof Dr Sr Ting Kien Hwa, the Professor of Property Investment at Universiti Teknologi MARA, Shah Alam gave an overview of the Malaysia REITs market and relayed the opportunities that comes with securitisation of real property assets.

The Conference then flowed to the main itinerary, which consisted of the Panel Session and Roundtable Conference.

Creating New Value with Old Assets

Featuring an esteemed panellists ranging from REIT managers, to tax consultants, bankers and investment experts, the panel session gathered leaders of the Malaysian REITs sector to share their expertise on the fundamentals of establishing and managing REITs in Malaysia.

Moderated by Sr. Haji Fakru Radzi Ab Ghani, CEO of PREC, the session addressed the issue of generating returns for investors and stakeholders within the current market outlook.

Datuk Hashim Wahir, the CEO of KLCC Property Holdings Berhad emphasised on the importance of efficient asset management in ensuring sustainable yield and distribution. He stressed the need to leverage on new technologies to meet the demands of the market, referencing KLCC’s drive to create a “Workplace for Tomorrow” for all its office buildings.

When addressing the resilience of focused REITs compared to diversified REITs, Wan Azman Ismail, Executive Director of Damansara REIT Managers (DRMSB) highlighted that it very much depends on the tenant mix of an asset. He emphasised that in certain cases, having one strong tenant might be more ideal than having multiple tenants, citing the example of KPJ as tenants to DRMSB.

In an environment in which rentals for retail and office properties are pushed down due to oversupply, Hafidz Atrash Kosai Mohd Zihim, the CEO of Pelaburan Hartanah Berhad (PHNB), noted the increasing need to control costs to ensure a good margin for distribution to unitholders. Always on the lookout for new collaborations, he highlighted that PHNB are eyeing for yield-accretive properties that can ensure stability of income over the years.

At this venture, Hidayah Hassan, Managing Director / Co – Head Corporate Finance and Advisory of Maybank Investment Bank noted that managers should take advantage on the growth of industrial sector, notably in warehousing and logistics. Furthermore, before looking to add to their portfolio, REIT managers should consider the outlook of the markets that affect the tenants of the sector that they choose to venture into, according to Hoh Yoon Hoong, a Partner for
Ernst & Young PLT.

The panel also discussed the feasibility of entering into REITs with the current tax and low interest rate environment. Yee Wing Peng, Country Managing Partner of Deloitte stated that the tax environment in Malaysia makes for a conducive environment for the growth of REITs. On the other hand, Zulhilmy Kamaruddin, Director of Group Client Coverage of RHB Group urged managers to engage in active liability management by exploring derivatives such as Interest Rate Swaps to mitigate interest rate risks.

Speaking from a global investor perspective,  Adj Prof Maxshangkar, CEO of Max Capital Management urged investors to look beyond Malaysia when considering investment opportunities in REITs.

The roundtable discussion engaged representatives from State Economic Development Corporations from Terengganu, Sarawak, Penang, Selangor, Kedah and Melaka. Also present was Zulhilmy Kamaruddin from RHB Group and moderator for the session, Datuk Beatrice Nirmala from The IBR Asia Group.

Maximising Value and Yield of State-Owned Assets through REITs

With hopes to find a way to maximise the vawlue of state-owned assets, high-level decision makers from the SEDCs from Selangor, Penang, Melaka, Perlis, Kedah, Sarawak and Terengganu sat for an engaging roundtable discussion at the second session of the Conference.

Monetisation of government assets might seem uncommon, however it has been done before. Johor was the first state to venture into REITs through its real estate division, DRMSB. Truly a pioneer in the field, its REIT, Al-`Aqar Healthcare REIT was first listed in 2006, 12 years before the federal government announced plans to establish the world’s first airport REIT as an avenue to raise revenue for the government by monetising its ownership of infrastructure assets.

Discussions of the roundtable revolved around the challenges that individual states experience
in managing and maintaining their assets that hinder prospects of the inflow of investments. For instance, Sarawak, Perlis, Terengganu and Kedah suffer from brain drain and low purchasing power of its population, hindering growth of its retail and commercial sectors. Other challenges are more of the technical nature due to the lack of expertise in REITs, as is the case for Penang and Melaka.

Looking to the success story of Johor and Selangor’s eagerness to venture into REITs,  the representatives held positive views on REITs as a new source to generate income and improve its balance sheets. Ending on a promising note, the possibility for future collaborations between the states in the area of REITs was raised, as each state seek to learn from one another with hopes to increase income for the state and to ensure that their assets remain sustainable for the future.

The Future of REITs in Malaysia

Citing the role of Bursa Malaysia as a catalyst for growth in Malaysia’s economy, Mahdzir Othman, Director of Securities Market of Bursa Malaysia, reinforced the potential and breadth of REITs in Malaysia in his closing speech. Following the megatrends in the market that witnessed increased demands in sectors such as industrial warehouse, data centres and telecommunication towers, Mahdzir notes that Bursa Malaysia is hopeful for more listing of REITs in the exchange in the future.

Over the past decade, REITs market capitalisation in Malaysia has gone up from RM9.64 billion to RM43.3 billion. With the added stimulus of the Shared Prosperity Vision 2030 that is expected to generate more demand for commercial and industrial properties as well as the development of new growth sectors, corporations and the government should re-assess their portfolios in order to maximise the value of those assets through REITs.