This article first appeared in The Edge Malaysia Weekly on July 31, 2023 - August 6, 2023

AMANAHRAYA Real Estate Investment Trust (AmanahRaya REIT) is in talks to acquire education assets in the country as part of a broader strategy to reposition its diversified portfolio in the education asset class.

“The education assets that we have seen so far offer high-yield potential. There are four to five offers on the table right now. We are seriously looking at two. We hope to close the deals in this financial year ending Dec 31, 2023 (FY2023),” Tunku Rozita Abdul Malek, managing director of AmanahRaya-Kenedix REIT Manager Sdn Bhd (AKRM) — the manager of AmanahRaya REIT — tells The Edge in an interview.

“We are looking at the full spectrum [of the education business]. At the moment, we are looking at properties that provide tertiary education, but we will look at other sub-segments as well. We are not limiting ourselves. We are a REIT, so we are all about yields.

“We will look at any education asset as long as they produce high-yield investments. We can help [release] the education providers from the burden of owning assets by selling and leasing the properties back to them on a long-term basis for management and operation.” 

AmanahRaya REIT is managed by AKRM, which is 51%-owned by Amanah Raya Bhd and 49%-owned by Japan’s real estate asset management firm Kenedix Asia Pte Ltd. The REIT currently owns 12 properties across multiple asset classes, consisting of five office buildings, three higher education assets, two hospitality properties, one industrial property and a mall.

Tunku Rozita says most of the 12 assets are profitable except its office buildings. The REIT’s flagship property Vista Tower on Jalan Tun Razak, Kuala Lumpur, was hit particularly hard by the Covid-19 pandemic because of forced remote work, coupled with the overhang in the office market. The occupancy rate is currently 38%.

She notes that Covid-19 prompted a revolution in remote working, and despite the dismantling of pandemic-related restrictions and a return to normal life, some people are still going remote. “Hybrid working has become more widespread and I don’t think that is going to change. And many companies have also downsized by adopting hot-desk arrangements.

“[The impact on Vista Tower] hit our REIT’s revenue. It was a learning process for us. We learnt [from the pandemic] what worked and what didn’t. And what we’ve found is that education assets are the most resilient asset class out there, which is why we want to focus on this segment,” she says.

Against a still-challenging backdrop in which persistent oversupply continues to weigh on the office and retail sub-sectors in particular, Tunku Rozita is repositioning AmanahRaya REIT as an education-centric trust, with the SEGi University College main campus in Kota Damansara, Selangor, set to replace Vista Tower as the REIT’s flagship property.

Already, SEGi Kota Damansara has surpassed Vista Tower to become the REIT’s highest dividend-yielding asset in the portfolio, with a yield of 7.8%.

“We learnt that education assets like SEGi and HELP University have proven their resilience and delivered returns through the pandemic. We continued to receive rental income from tenants who have usually signed long-term leases,” Tunku Rozita says.

Its three education assets comprise SEGi University College in Kota Damansara and Subang Jaya, and HELP University on Jalan Semantan, KL.

AmanahRaya REIT recently renewed the leases with SEGi that expired last year for five years from January 2023, with an extension of five years. Its lease with HELP University runs until 2039. According to Tunku Rozita, the tenancy agreements have built-in step-up rental escalation clauses.

As at end-December 2022, AmanahRaya REIT had RM1.412 billion in assets under management (AUM), which it aims to increase to RM2.5 billion in five to seven years. To reach this new AUM target, Tunku Rozita says, the REIT will grow its education assets through acquisitions or value-add strategies such as repurposing some of its underperforming or underutilised office buildings, as well as dispose of non-core assets.

Its portfolio is 24% education, 2% industrial, 10% retail, 10% hotel and 54% offices, which is the toughest sector. Tunku Rozita points out that even though the education segment represents 24% of the REIT’s AUM, it contributes 42% to gross income. “We hope to derive at least 65% to 70% of gross income from the education segment in five to seven years.”

AmanahRaya REIT is exiting what it refers to as the non-core hospitality segment as part of its shift to high-yield education assets. It announced in June that it was disposing of its four-star Holiday Villa Beach Resort and Spa Langkawi in Kedah to Plenitude Bhd for RM145 million. Upon completion of the disposal in the first quarter of 2024, the REIT is poised to lock in a RM45 million gain, while gearing will fall to 42.33%, from 45.04% based on its balance sheet as at end-December 2022.

Proceeds from the transaction will be used for the acquisitions of education assets or to pare down the REIT’s existing debt, which was RM635.46 million as at end-March. Cash and cash equivalents stood at RM34.95 million.

The REIT is also looking to sell off the former Holiday Villa Alor Setar in Kedah, which has been left vacant since 2018, as it seeks to fully exit the hospitality business. AmanahRaya REIT had acquired the property in February 2007 for RM31 million. The property value had dropped to RM25 million as at December 2022, according to the REIT’s 2022 annual report.

Meanwhile, Tunku Rozita says the industrial asset in Nusajaya, Johor, is currently yield-accretive to the REIT. The one-storey factory annexed with a three-storey building sits on a 130,685 sq ft site and commands 95,035 sq ft in net lettable area. The property is leased to RHF Stone Sdn Bhd for nine years from March 2019 with an extension of three years.

“We have no issue related to our industrial asset at the moment. As long as it is yield-accretive to the REIT’s earnings, we will keep it,” she adds.

She says, however, that AmanahRaya REIT will continue to divest its non-core properties in its portfolio, particularly the office assets. “This may include Vista Tower. We are looking at various viable options to help boost its occupancy rate.”

Apart from Vista Tower, all office assets owned by AmanahRaya REIT are located in Selangor. They are Wisma Comcorp and the Toshiba TEC office building in Shah Alam; Dana 13 and Dana 1 Commercial Centre in Petaling Jaya; and Contraves office building in Cyberjaya. It also owns Selayang Mall in Selangor.

There is also potential for some office space to be converted for education purposes. Amanah­Raya REIT is in the midst of repurposing an office building for educational needs, she says.

“A local private school operator is currently operating in five shoplots and their business is growing quite fast. So, now they want to have their own building. They have asked us whether it is possible to be a tenant in one of our office buildings, but we must get approval from the local council to repurpose the office building for education use,” she says, declining to disclose the name of the property, as the deal is still being negotiated.

Tunku Rozita says the REIT will reposition its portfolio to focus on “three or four sub-sectors”. The trust’s primary focus is on education assets, but it plans to look at investing in assets related to wellness, such as assisted living facilities and senior living centres. “There [will be] a big demand for that, but we are still in the early stages of exploration.”

The new direction follows a shake-up of AKRM’s board of directors and leadership team. Tunku Rozita, 54, who joined AKRM as an independent director in January 2022, was redesignated as managing director of the REIT manager in December that year to drive the REIT. In January this year, Datuk Mohd Radzif Mohd Yunus was appointed the REIT manager’s non-executive chairman.

At the same time, AKRM saw Keisuke Ogawa, Zulazman Zulkifli, Mahadzir Azizan and Datuk Che Pee Samsudin relinquishing their positions on the board and being replaced by Nguyen Thi Hoang Hanh, Wan Azman Ismail and Datuk Mohammed Noor Azmall Jamaluddin. Aida Mosira Mokhtar remains an independent and non-executive director of AKRM.

According to the REIT’s 2022 annual report, Tunku Rozita served as senior vice-president of institutional sales at CIMB Investment Bank Bhd for 17 years.

For support, Tunku Rozita has assembled several individuals to join her executive team, including the appointment of Yusoff Iskandar Mohd Zaki as chief operating officer, Anuar Husin as chief investment officer, Sahrul Nizam Mohd Salleh as head of finance and accounts, Nazatul Syima Khairuddin as head of property management and Justhinderpal Kaur as head of legal and compliance.

“The tone is set from the top. Under the directive of Amanah Raya group managing director Ahmad Feizal Sulaiman Khan, we are now given quarterly key performance indicators to achieve. We have been restructuring our portfolio, putting succession planning in place, and getting consultants to look at our processes and procedures, among other things,” she says.

AmanahRaya REIT’s largest shareholder is Amanah Raya, which holds a 47% stake, followed by Kenedix Asia, which holds 15% of the REIT via KDA Capital Malaysia Sdn Bhd.

There are 19 listed REIT entities on Bursa Malaysia, but none are education-centric, says Tunku Rozita. “We want to increase our profile because a lot of people are still unaware of what we offer; we intend to change that. We have been listed since 2007.”

AmanahRaya REIT has seen a decline in its performance since FY2020. In FY2022, it posted a net property income (NPI) of RM56.2 million, down 17% year on year, while revenue fell 10% to RM77.86 million. The REIT attributed the weak performance to the decrease in rental income from Vista Tower, followed by Toshiba TEC and Dana 13.

Its dividend growth performance has also been on the skids since FY2020. Its distribution yield was 5.8% in FY2022, slipping from 7.6% in FY2021 and 7.7% in FY2020.

AmanahRaya REIT units have declined 24.8% year to date to close at 44 sen last Friday, giving it a market capitalisation of RM252.2 million. On the back of the weak unit price, Tunku Rozita says the REIT has no plans to raise funds from the equity market for now. “Our current [unit] price is not conducive to go to the market and raise funds. We need to grow organically first. At the moment, we can use the proceeds from the proposed sale [of Holiday Villa Langkawi].”

Asked when she expects to see the downward trend reversed, Tunku Rozita says: “Give us a year or two to see positive movement when we have aligned our portfolio. We are working very hard to increase the tenancy rates at all our buildings.

“It is a team effort. I cannot do this alone. I am still building up the [management] team and putting proper succession planning in place.

“Even with an AUM of RM2.5 billion, we are not going to be as big as IGB REIT and Sunway REIT, [which had an AUM of RM5.02 billion and RM9.1 billion respectively in 2022]. They are huge and at a different level. We will be a mid-range education REIT play.” 

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