This article first appeared in The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024

CapitaLand Malaysia Trust (KL:CLMT), which mainly manages retail properties, is eyeing industrial properties and logistics hubs for further growth amid an anticipated increase in industrial activities, particularly in Penang and Johor.

“We are generally quite bullish on Penang and Johor because of the government’s push to make Malaysia a manufacturing hub. And logistics warehouses are the backbone of all manufacturing sectors, whether for exports or domestic consumption,” CLMT CEO Tan Choon Siang tells The Edge in an interview.

Assets under its portfolio include Gurney Plaza and Queensbay Mall in Penang; Sungei Wang Plaza in Kuala Lumpur; The Mines and 3 Damansara in Selangor; and East Coast Mall in Pahang.

While the China Plus One strategy has benefited Penang by encouraging more foreign direct investment into the state, Tan, a Singapore national, also observes that the “Singapore Plus One” strategy has benefited Johor due to the sharp rise in business costs in the Lion City over the past three years.

“People are relocating some of their projects [to Johor]. Coupled with the RTS (Johor Bahru–Singapore Rapid Transit System Link) and the [Johor-Singapore] Special Economic Zone, there will be more industrial activities in Johor. We are in talks with some vendors to look at industrial properties,” he says, without disclosing further details.

CLMT currently owns two logistics assets, namely the Valdor Logistics Hub in Penang and the Glenmarie Distribution Centre in Selangor. Both of the assets were fully occupied as at March 31.

The real estate investment trust (REIT) is expecting to complete its acquisition of three factories located at the Nusajaya Tech Park in Iskandar Malaysia, Johor, by the fourth quarter of the year. It had in February announced the acquisition from Nusajaya Tech Park Sdn Bhd for a combined RM27 million, marking the former’s entry into the industrial segment.

According to CLMT, the acquisition is expected to generate a net property income of RM1.7 million per annum, with a first-year gross yield of about 7.3%.

As at Dec 31, 2023, CLMT’s total assets under management amounted to RM5.01 billion, with 97.5% consisting of retail properties and 2.5% comprising logistics assets.

CLMT expects to turn around its loss-­making shopping malls in the Klang Valley — namely Sungei Wang Plaza and 3 Damansara — within the next two years.

Sungei Wang Plaza has been loss-making since the financial year ended on Dec 31, 2020 (FY2020), while 3 Damansara Property has been in the red since FY2021. The latter comprises the 3 Damansara shopping mall and the 3 Damansara office tower; however, the office tower was divested last year for RM52 million.

While the two malls are deemed low-­yielding assets, Tan says the group will continue to focus on maximising the value of the assets before looking at any divestment options.

“We are open to divestment opportunities. The question is, who will buy a mall that is not yielding anything? We need to improve the malls first.

“However, we have visibility now on the improvement of occupancy rates and rental. We know that we have not maximised the value [of the assets]. There is no point selling when the yield is low now because our rental is going to improve,” he says, adding that the group is expecting an average rental reversion of 7%.

CLMT says Sungei Wang Plaza will continue to leverage the concertgoers at Mega Star Arena to boost the performance of its food and beverage tenants. Meanwhile, 3 Damansara will be positioned as a neighbourhood mall which offers family-friendly activities.

For the first quarter ended March 31 (1QFY2024), Sungei Wang Plaza saw its net property loss narrow to RM423,000 from RM1.37 million in the previous corresponding quarter.

3 Damansara Property’s net property loss also reduced to RM77,000 in 1QFY2024 compared with RM974,000 in 1QFY2023.

At the group level, over 95% of the REIT’s net property income is contributed by its malls outside of the Klang Valley, namely Gurney Plaza, Queensbay Mall and East Coast Mall.

When asked if the group would consider further expansion for its retail portfolio in second-tier cities in Malaysia, Tan says, “It is possible but it will be difficult in the retail market in Malaysia because there has been a lack of supply — there are no good malls for sale.”

Shares of CLMT have climbed over 40% since it acquired Queensbay Mall in March last year. Currently, the REIT is valued at RM1.9 billion. The consensus target price compiled by Bloomberg is 66 sen, suggesting a potential downside of 1.5% based on last Wednesday’s closing price of 67 sen.

Overall, CLMT reported an increase of 63% year on year in its net property income to RM63.98 million in 1QFY2024, driven by full-quarter revenue contribution from Queensbay Mall, higher occupancies and positive rental reversions.

In FY2023, its net property income came in at RM217.4 million, up 42.6% from RM152.5 million in FY2022.

According to Bloomberg, it has a 12-month distribution yield of 5.12%, against the average 6% for the REIT industry. Its distribution per unit amounted to 4.17 sen in FY2023 versus 4.01 sen in FY2022. 

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