Alternative asset classes for M-REITs



SINCE the launch of Malaysia’s first Real Estate Investment Trust (M-REIT) in 2005, the industry has grown in leaps and bounds with various Initial Public Offerings (IPOs) over the years.

With the last listing of IGB Commercial REIT, the total number of listed M-REITs currently stands at 18, with a combined market capitalization of almost RM40 billion.

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

At the same time, some listed REITs such as Al-Hadharah Boustead REIT and Amanah Harta Tanah PNB were also deprived by their sponsors Boustead Holdings Bhd and Permodalan Nasional Bhd in 2014 and 2021 respectively.

As such, with the support of government, regulators and other actors in the sector, new perspectives and opportunities in a liberalized environment will be needed to enhance the attractiveness of the M-REIT sector and encourage greater participation of the M-REITs. long-term local and regional actors. .

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

New opportunities, endless possibilities

For starters, alleviating the tax flows and funding challenges of M-REITs when they invest in bespoke developments and international real estate through Joint Ventures (JVs) and Special Purpose Vehicles (SPVs) would be a step forward. low fruit on hold by opening 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 technological sector, the inclusion of transport and digital infrastructure as investment assets through REITs, commercial trusts or other collective investment schemes or CIS would also help boost capital market and offer 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 that note, the Airport REIT and Highway Trust could be reviewed and expanded to include seaports, railways, power plants, utilities, telecommunications towers and public transport.

Once the structure of the FPI is in place, the government and GLCs can focus on their main strategic planning responsibilities and implement high impact projects in a light manner, generating a potentially greater multiplier effect for the rakyat and the economy with a faster turnaround, relieved of heavy capital investment burdens with long payback periods and expensive maintenance.

As these infrastructure trusts are professionally managed with specialist expertise, potential improvements in efficiency, technological development and further savings can be made.

Meanwhile, the government can also retain control through long-term master leases, ownership of capital, and restrictions on sale and transfer to protect national interests and prepare for a better future for Malaysia.

In addition, infrastructure trusts would also provide ordinary citizens with unique opportunities to participate in the continued development of the country, including through GLICs and institutions such as PNB, KWAP and EPF, creating a more equitable circular economy in accordance with Shared Prosperity Vision 2030 as family investors. would benefit from the revenue share of public infrastructure, thereby increasing the value of their equity, savings and investments over the long term.

SCPI data-center: offices and factories of the future

With the accelerating trend of digitization, Malaysia presents an attractive case as a regional data center hub as a relatively early user of 5th Generation (5G) technology, supported by a skilled workforce. , local expertise and international connectivity.

As in the case of infrastructure trusts, owner-operators can choose to adopt a thin asset model for faster, more streamlined expansion by injecting their data centers into the REIT structure, relieving them of the burden of the REIT. development and possession of expensive specially designed facilities. , allowing them to focus on the digital wave with the support of more growth-oriented technology investors.

Other REIT segments: Versatile and diversified

With the support of a favorable regulatory and market environment, the REIT / trust structure can be very versatile and can be applied to a wide range of income-generating assets.

This includes multi-family homes, student housing, senior residences and assisted living facilities, parking lots, gas stations and convenience stores, farmland and woods, as well as various bespoke developments such as cold stores and warehouses equipped with automated storage and recovery systems or ASRS.

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

Collaborative effort, collective success

Naturally, big dreams require big progress, and the joint effort of all stakeholders would be essential to elevate the M-REIT industry and the Malaysian capital market beyond its current state.

As M-REITs proactively innovate and progress to new and emerging structures and asset classes with the support of regulators and government, investor education would be important to stimulate interest, knowledge and awareness. understanding of unitholders.

On the one hand, different industries and geographies come with different risk-adjusted returns, and setting the right return expectations would be crucial when making investment decisions.

While social impact investments such as the proposed affordable rental housing or ARH on wakaf land would have a lower return and limited upside potential, the government could potentially help protect the downside risks of these CSR programs and ESG and provide a certain balance between improving society and return on investment as a master tenant of affordable housing.

For a better future

As the saying goes, “innovate to reach new heights”, M-REITs look forward to working 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 maybe one day we might even see the listing of the first Durian REIT. to the world in Malaysia.

Datuk Jeffrey Ng is the former President of the Malaysian REIT Managers Association and CEO of Sunway REIT Management Sdn Bhd. The opinions expressed here are his own.


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