This article first appeared in The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

AFTER almost two years of repositioning, Tunku Rozita Abdul Malek, managing director of Amanah­Raya-Kenedix REIT Manager Sdn Bhd — the manager of Amanah­Raya Real Estate Investment Trust (Amanah­Raya REIT) (KL:ARREIT) — believes “the worst is over” for the REIT after it unloaded non-core assets such as Holiday Villa Langkawi, repurposed and optimised some properties and doubled down on the high-yield education segment with acquisitions.

The REIT’s net property income (NPI) fell 17.3% to RM46.5 million in the financial year ended Dec 31, 2023 (FY2023) from RM56.2 million in the previous year, marking its worst performance since its 2007 initial public offering. It attributed the drop to reduced rental income from office spaces, particularly at its flagship property Vista Tower in Jalan Tun Razak, Kuala Lumpur. Revenue declined 7% to RM72.3 million from RM77.7 million in FY2022.

For the first half of FY2024 (1HFY2024), AmanahRaya REIT’s NPI fell 11% to RM21.9 million from RM24.6 million in 1HFY2023, while revenue dropped 8% to RM34 million from RM37 million. The weaker 1HFY2024 performance was due to the disposal of Holiday Villa Langkawi for RM145 million, which was completed in January, and the early termination by SEGi College of its Subang Jaya property lease in February.

“We saw the worst of our annual performance last year, in terms of revenue and growth. Things are moving up, especially this year going into next year. Growth is expected to take off in FY2025,” Rozita tells The Edge in an interview.

While the loss from SEGi College’s early lease termination will be mitigated by the immediate leasing of the property to ALFA University College Sdn Bhd with an 18-year lease agreement, the income accretion will only begin in FY2025 as the property will undergo renovations.

Lower interest rates, meanwhile, are driving a recovery in the property sector, creating new investment opportunities for REIT players.

“The outlook is promising, coming off the back of a high interest rate environment. There is a lot of interest in the sector, especially for industrial properties. Malaysia is seeing an increase in foreign direct investments, fuelled by demand for data centres,” she says.

The US Federal Reserve lowered interest rates for the first time in more than four years last month, with a 50-basis-point cut. This led to some central banks with currencies tied to the US dollar following suit, bringing a measure of relief to borrowers around the world.

Since taking the reins in December 2022, Rozita, who was a stockbroker at CIMB from 1994 to 2011, has repositioned AmanahRaya REIT as an education-centric trust. In addition to education assets, it also plans to look at assets related to industrial and wellness, such as rehabilitation centres and assisted-living facilities.

The REIT has been repurposing some of its underperforming or underutilised office buildings, as well as disposed of two non-core assets, Holiday Villa Langkawi and the Contraves office building in Cyberjaya.

“We are open to repurposing our properties. In November last year, the former Toshiba TEC Malaysia office building in Glenmarie, Shah Alam, was turned into a rehabilitation centre after the trust entered into a 15-year lease with Integra Healthcare Technology Sdn Bhd.

“Our strategy is to lock in long-term tenants with positive rental reversions every three years. This way, we can get a stable income,” says Rozita.

“If we do find good deals on the table, we will consider it. That’s because we do want to go into the three pillars [education, industrial and wellness].”

AmanahRaya REIT made its first acquisition in two years in August, with the purchase of Sekolah Tinta in Glenmarie for RM31.4 million. The transaction will provide it with a stable and growing income stream, with a 15-year lease and an entry of 6% net yield bolstered by pre-agreed double-digit rental revisions every three years.

Rozita makes it clear that it is nowhere near done with its acquisitions. AmanahRaya REIT remains optimistic about prospects in the education, industrial and wellness sectors as it looks to add these asset classes to its portfolio.

“Education and wellness fit into the environmental, social and governance (ESG) mandate. We see a lot of potential in these sectors. We are looking to acquire education assets such as universities, colleges and international schools. There are quite a number to discover out there. We have been meeting quite a number of owners of private education firms that are looking to expand,” she says.

“When [I became managing director] in December 2022, we had a mixed bag of properties in our portfolio — hotel, retail, office, education and industrial. There was no clear direction. Since then, we have streamlined our portfolio to three asset classes — education, wellness and industrial.

“At the time, the market condition was not conducive for the property sector because we had just come out of the Covid-19 pandemic and [the country] had had a relatively turbulent general election. Also, the US has been aggressive with its interest rate hikes [as it tries to combat sticky inflation]. That was a challenging time. We also didn’t have a proper investment team, and there were no set policies and procedures — everything was done manually on our leasing end in terms of taking care of our tenants and buildings.

“There are now policies and procedures in place for every department, we have a new head of finance and compliance and risk, we have a bigger team in investment and we are getting a new head of leasing. Getting the right people is important. At the same time, we have a new property management system, so everything is automated. With this, when I go into the system, I have a summary of what’s going on across all properties in terms of financing, debt and what’s outstanding. We have also introduced our own app called ARREIT Touch to provide better services to tenants. All tenants can give us feedback, complaints and even advertise their company via the app.

“We are refinancing our loans as well, to get a lower rate, and moving our cash reserves to a different bank for higher FD (fixed deposit) returns. Everything is happening concurrently. We are more aggressive when it comes to filling up the available spaces and reducing our operating costs.”

AmanahRaya REIT’s total borrowings stood at RM558.1 million at end-June 2024.

As part of the new strategy, its headquarters has been relocated to Vista Tower from Wisma AmanahRaya in Jalan Ampang, KL.

“It makes more sense as interaction with our tenants becomes much more personal. We don’t just want a landlord-tenant relationship. We work on the angle of a partnership rather than a one-off tenancy. If you are looking to expand, let us know. We will look for the property across Malaysia for you. If we buy the property, you become our tenant. We are working with one now,” says Rozita, declining to elaborate.

AmanahRaya REIT has 11 properties in its portfolio — four higher education assets, four office buildings, one hospitality property, one industrial property and a mall. The education assets are Sekolah Tinta, ALFA International College, SEGi University College in Kota Damansara and HELP University in Jalan Semantan, KL.

Rozita says most of the assets are profitable. Vista Tower, which was hit particularly hard by the pandemic because of forced remote work, as well as an overhang in the office market, has seen its occupancy rate increase to 62% from 35% as at end-December 2023. “The occupancy rate should increase to almost 70% by year end. We are still on target to reach 90% by FY2025, which is set by our board of directors.”

The occupancy rate at Menara Dana 13 in Petaling Jaya is 60%, while that of Selayang Mall is 96%. All of its buildings are occupied, except for a 21-storey hotel in Alor Setar, Kedah, formerly known as Holiday Villa Alor Setar. AmanahRaya REIT is looking for a new tenant for the hotel while exploring repurposing options.

As at end-December 2023, the REIT had RM1.242 billion in assets under management (AUM). Vista Tower made up almost half of that value.

The REIT is keeping its AUM target at RM2.5 billion, to be achieved in five to seven years. It is actively pursuing acquisitions to reach this target.

“Size does matter. We are small. We need to grow bigger to get more eyeballs. A challenge we face is that we don’t have a sponsor or development arm. For example, IGB REIT (KL:IGBREIT) and KLCCP Stapled Group (KL:KLCC) have a property development arm, so it is easy for them to inject their assets into the REIT if they want to. We don’t have that. That’s why we have to be more aggressive and look for properties,” she says.

The trust is exploring equity funding options to pay for this expansion, says Rozita. As at June 30, 2024, it had a cash balance of RM45 million and an undrawn financing facility of RM400 million.

“As a REIT, we have a gearing limit of up to 50% set by the Securities Commission Malaysia. Raising capital through the capital markets will give us a healthier balance sheet. However, it won’t be so soon. Not this year. If we want to go for a major acquisition, we will definitely need to look at equity funding,” she notes.

And it will not rush into acquisitions. “The property’s yield has to be attractive. Second is the strategy of the educational owner. What is your plan for the next five years? What kind of courses are you offering? Is it in line with what the world needs? Is ESG in there? It is not just about the bottom line,” says Rozita.

Amanah Raya Bhd, a trustee company owned by Minister of Finance (Incorporated), is AmanahRaya REIT’s largest shareholder with a 46% stake, followed by Japan-based Kenedix Asia Pte Ltd, which owns 15% via KDA Capital Malaysia Sdn Bhd. 

AmanahRaya REIT’s unit price closed at 32.5 sen last Thursday — down 18% year to date — giving the REIT a market capitalisation of RM186.3 million. 

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