This article first appeared in The Edge Malaysia Weekly on May 6, 2024 - May 12, 2024

IN the first four months of the year, Malaysian real estate investment trusts (REITs) have announced six acquisitions totalling RM2.65 billion as they look to beef up their portfolio of assets following last year’s tepid deal flow. However, getting their hands on higher-yielding assets could prove challenging, analysts say, given that most players are eyeing the same subsectors.

In 2023, there were only eight acquisitions with a total value of RM1.49 billion, compared with 15 acquisitions valued at RM4.68 billion in 2022.

While the REIT industry’s asset expansion is expected to improve this year, analysts caution that it might be more difficult for players to acquire high-yielding assets, especially those in “hotspot areas”.

Kenanga Research analyst Clement Chua is of the view that the appetite for REIT acquisitions could be better this year, especially for debt-funded deals, as financing expenses have been growing quite substantially in response to higher interest rates.

“In a steady interest-rate environment, it may be easier for REITs to project their cash flow and returns on investment,” he tells The Edge.

RHB Research analyst Loong Kok Wen, however, says as most of the REITs are eyeing industrial properties, a bigger challenge would be the availability of assets with decent yields.

“A lot of industrial asset owners know the market value because the industrial property segment is now [in] a sweet spot. So, many of them are opportunistic and have raised the selling prices, hence the yields are rather low,” she explains.

Taking CapitaLand Malaysia Trust (CLMT) as an example, Loong says the industrial assets acquired recently by the REIT were relatively smaller in size with a collective built-up area of 74,142 sq ft.

“It has been quite hard to get good assets with decent yields in the past two years,” she notes.

CLMT is spreading its wings into the industrial market through the acquisition of three ready-built factories within the Nusajaya Tech Park in Iskandar Malaysia, Johor, for RM27 million. At the same time, it is expanding its geographical footprint to Johor.

Currently, CLMT has two logistics assets and six retail properties, namely Sungei Wang Plaza, 3 Damansara and The Mines in the Klang Valley; Gurney Plaza and Queensbay Mall in Penang; and East Coast Mall in Kuantan, Pahang.

But Loong also observes that players such as Axis REIT have been able to acquire a number of assets even though industrial assets are more expensive.

Axis REIT has remained active in asset expansion over the years. Last year, it acquired a two-storey shopping mall in Temerloh, Pahang, and industrial premises in Negeri Sembilan, for a total of RM73.73 million.

Loong says even though the assets may be less superior, the key is in how REIT players develop, market and acquire tenants for them.

She also believes that interest rate stability could give REIT players the confidence to acquire assets.

“In terms of momentum, I think it will still continue because the high interest-rate environment is probably over. It has already peaked and should go down. The question is when that will happen.”

Apart from Johor, Loong observes that industrial assets in Penang and Selangor have also garnered market interest.

For the hotel segment, she believes it will be supported by the recovery of the economy and the return of foreign tourists.

YTL Hospitality REIT, for one, continues to expand its asset portfolio, including participating in a RM55 million deal to acquire Syuen Hotel in Ipoh, Perak. Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd, a wholly-owned subsidiary of YTL Corp Bhd, has been appointed to undertake renovation works at the hotel, which will be reopened as an AC Hotel by the Marriott brand.

The Syuen acquisition followed the completion last October of YTL Hospitality REIT’s purchase of Hotel Stripes Kuala Lumpur, Autograph Collection from its parent YTL Corp for RM138 million cash.

Only last month, it announced plans to develop a Moxy hotel in Hokkaido, Japan, for an estimated RM199 million.

Loong sees room for growth in both industrial and retail REITs.

“We remain positive on the prospects of the industrial subsector premised on its favourable supply-demand dynamics, with certain manufacturing sectors also having benefited from the US-China trade tensions. Coupled with the influx of investments, and favourable government policies such as the New Industrial Master Plan 2030, the industrial segment should continue to fare better,” she states.

On the retail front, she thinks the potential injection of Mid Valley Southkey, Johor — which opened its doors in April 2019 — will be a strong catalyst for IGB REIT. She favours the REIT for its robust earnings outlook, underpinned by its fully occupied and strategically located malls.

Notable deals in 2023 were the acquisition of Menara CelcomDigi in Petaling Jaya, Selangor, by Sentral REIT for RM450 million, and Sunway REIT’s purchase of six hypermarkets/retail complexes in the Klang Valley and Johor from the Employees Provident Fund for a total RM520 million.

Key transactions this year include KLCC Property Holdings Bhd’s (KLCCP) acquisition of a remaining 40% equity interest in Suria KLCC Sdn Bhd, which owns and manages Suria KLCC mall, for RM1.95 billion.

KLCCP — in which Petroliam Nasional Bhd (Petronas) is the largest shareholder with a 64.68% stake — is actively looking to expand its portfolio and seeks mature assets with good yields.

Sunway REIT is continuing with its buying spree this year with the planned acquisition of the 163 Retail Park shopping mall in Mont’Kiara from YNH Property Bhd for RM215 million cash.

Other REITs are also looking to beef up their portfolio of assets. Last October, Hektar REIT — which owns retail assets such as Subang Parade and Mahkota Parade — told The Edge that it is diversifying its portfolio to include the education and industrial sectors as it adapts to changing market dynamics.

Its first purchase of an educational asset, Kolej Yayasan Saad in Ayer Keroh, Melaka, for RM150 million, was announced last September.

Last month, Al-’Aqar Healthcare REIT said that it was actively targeting to acquire yield-accretive properties from its 31.12%-owned shareholder, KPJ Healthcare Bhd, as part of its asset expansion plan.

Amid the positive broader market sentiment, Bursa Malaysia’s REIT Index has risen 6.5% year to date, compared with the FBM KLCI’s 9.3% gain. 

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