Alternative asset classes for M-REITs


SINCE the first Malaysian real estate investment trust (M-REIT) debuted in 2005, the industry has grown by leaps and bounds with various initial public offerings (IPOs) over the years.

With the latest listing of IGB Commercial REIT, the total number of listed M-REITs currently stands at 18, with a combined market capitalisation of close to RM40bil.

That said, in the absence of fresh catalysts, the number of M-REIT IPOs has undoubtedly slowed in recent years, with only two new listings since 2015.

Meanwhile, some listed REITs such as Al-Hadharah Boustead REIT and Amanah Harta Tanah PNB have also been taken private by their sponsors Boustead Holdings Bhd and Permodalan Nasional Bhd in 2014 and 2021 respectively.

As such, with the support of the government, regulators and other industry stakeholders, new perspectives and opportunities in a liberalised environment will be required to boost the attractiveness of the M-REIT industry and encourage more participation from local and regional players in the long term.

While Malaysia has established itself as one of the pioneering REIT markets in the region with a relatively early head-start, continuous improvement is necessary to accelerate the momentum to become a sought-after REIT hub, especially in the face of a rapidly evolving global real-estate investment landscape.

New opportunities, endless possibilities

For starters, easing the tax flow-through and financing challenges of M-REITs when investing in green/brownfield built-to-suit developments and international real estate through joint ventures (JVs) and special purpose vehicles (SPVs) would be a low-hanging fruit in opening up new avenues of growth and diversification for M-REITs beyond conventional segments such as retail, office and hospitality.

With the rise of the industrial and tech sector, the inclusion of transport and digital infrastructure as investible assets through REITs, business trusts or other collective investment schemes or CIS would also go a long way in spurring the capital market and providing more investment choices.

At the same time, this structure allows the government to raise funds for nation-building without straining public funds and incurring additional debt or debt guarantees.

Infrastructure trusts: Pillars of nation-building

On this note, the proposed Airport REIT and Highway Trust may be revisited and extended to include seaports, railways, power stations, utilities, telco towers and public transport.

With the REIT structure in place, the government and GLCs can focus on its core responsibilities of strategic planning and implement high-impact projects in an asset-light manner, generating potentially greater multiplier effect for the rakyat and the economy with quicker turnaround, relieved of the heavy capital investment burdens with long payback periods and costly maintenance.

As these infrastructure trusts are professionally managed with specialised expertise, potential improvements in efficiency, technological development and further cost savings may be achieved.

Meanwhile, the government may also retain control via long-term master leases, equity ownership and restrictions on sale and transfer to safeguard national interests and chart a better future for Malaysia.

Moreover, infrastructure trusts would also provide unique opportunities for regular citizens to participate in the country’s continued development, including through GLICs and institutions such as PNB, KWAP and the EPF, creating a more equitable circular economy in line with Shared Prosperity Vision 2030 as household investors would benefit from the share of income from public infrastructure, growing the value of their equity, savings and investments over the long term.

Data-centre REITs: Offices and factories of the future

With the accelerated trend of digitisation, Malaysia makes an attractive case as a regional data centre hub as a relatively early adopter of 5th Generation (5G) technology, supported by a skilled workforce, local expertise and international connectivity.

Similar to the case for infrastructure trusts, owner-operators may choose to adopt an asset-light model for quicker and more streamlined expansion by injecting their data centres into the REIT structure, relieving them of the burdens of developing and owning expensive purpose-built facilities, allowing them to focus on riding the digital wave with the support of more growth-oriented tech investors.

Other REIT segments: Versatile and diversified

With the support of a conducive regulatory and market environment, the REIT/trust structure can be highly versatile and may be applied to a vast array of income-generating assets.

This includes multi-family homes, student accommodation, retirement communities and assisted living, carparks, petrol stations and convenience stores, farmland and timberland, as well as various built-to-suit developments such as cold storage facilities and warehouses fitted with automated storage and retrieval systems or ASRS.

Taking a page from developed markets, examples of segments that may be explored in the context of M-REITs are listed in the table.

Collaborative effort, collective success

Understandably, big dreams require great strides, and the joint effort of all stakeholders would be key to elevate the M-REIT industry and the Malaysian capital market beyond its current state.

As M-REITs proactively innovate and progress towards new and emerging structures and asset classes with the support of regulators and the government, investor education would be important in spurring unitholder interest, knowledge and understanding.

For one, different industries and geographical locations come with different risk-adjusted returns, and setting the right yield expectations would be crucial in making investment decisions.

While socially impactful investments such as the proposed affordable rental homes or ARH on wakaf land would come with lower return and limited upside, the government could potentially help to protect downside risks for these CSR and ESG programmes and provide some equilibrium between the betterment of society and return on investment as the master-lessee of the affordable homes.

For a better tomorrow

As the saying goes, “break new grounds to reach new heights”, M-REITs look forward to working together with all stakeholders to chart a new horizon for the Malaysian capital market and real estate landscape.

With open hearts and minds, and with concerted vision and united action, the seeds of the durian tree would surely bear fruit, and perhaps one day, we may even see the listing of the world’s first Durian REIT in Malaysia.

Datuk Jeffrey Ng is the immediate past chairman of the Malaysian REIT Managers Association and CEO of Sunway REIT Management Sdn Bhd. The views expressed here are his own.

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