Setting an upbeat tone
Reits kick off the year with significant new acquisitions
THE first two months of the year has already seen some Rm350mil worth of acquisitions by local real estate investment trusts (REITS), seemingly setting the tone for what investors can expect for 2024.
Among the notable acquisitions include YTL Hospitality Real Estate Investment Trust’s (YTL-REIT) purchase of the Syuen Hotel in Ipoh, Perak, for Rm55mil, earlier this month.
Last month, Sunway Real Estate Investment Trust (Sunway-reit) announced that it had acquired the 163 Retail Park mall in Mont Kiara, Kuala Lumpur, for Rm215mil.
Additionally, KIP Real Estate Investment Trust (KIP-REIT) announced this month that it had completed its acquisition of KIPMALL Kota Warisan in Sepang, Selangor, for Rm80mil.
For the property investor, the sector is looking promising, with earnings growth of REITS anticipated to be at 9.1% this year, compared with an estimated 6.9% in 2023, according to Maybank Investment Bank Research.
This growth, the research house says, will be supported by sustained occupancy and rental rates, plus new-asset injections.
Rahim & Co International Sdn Bhd real estate agency chief executive officer Siva Shanker says the growth of REITS is anchored on sensible buying, sustainable tenancies and asset acquisitions.
“This is what makes REITS grow,” he tells Starbizweek.
Siva emphasises that there is no “speculative buying” when REITS purchase new assets.
“This is unlike other sub-sectors of the property market, where you do have plenty of speculative buying.
“REITS also purchase assets that are almost fully occupied and have triple-net leases in place.”
A triple-net lease passes the costs of structural maintenance and repairs to the tenant, in addition to rent, taxes and insurance premiums.
With regards to the asset purchases so far this year, TA Research in a report says the acquisition of KIPMALL Kota Warisan is poised to enhance KIP-REIT’S future performance.
“Furthermore, the management is dedicated to prudent capital management, aiming to deliver sustainable returns to unit holders and actively exploring growth opportunities in both retail and industrial assets,” it says.
Meanwhile, Kenanga Research says Sunway-reit’s newest acquisition is expected to be yield-accretive.
“The recent 163 Retail Park mall acquisition could present several opportunities for the group in optimising its tenant trade-mix and potentially lift its net yield of 6.5%.”
Following the acquisition, Sunway-reit Management Sdn Bhd chief executive officer Clement Chen said he was delighted to add 163 Retail Park to the group’s portfolio of assets.
In a statement, Chen remarked that the mall was “the best retail asset in the Mont Kiara neighbourhood.”
“While competition in the retail industry in the Klang Valley is rising, we believe 163 Retail Park is fulfilling the everyday requirements of a niche market and whose income will be resilient and less impacted by new mall openings.”
Chen anticipates the new property to have an initial net property income (NPI) yield of 6.5%, which will be yield-accretive to Sunway-reit’s portfolio.
“Surrounded by a substantial captive population comprising both locals and expatriates and coupled with our strong branding and track record in mall management, we believe the mall can be further enhanced as a premium lifestyle hub and NPI increased through tenant-mix optimisation and asset-enhancement initiatives,” he says.
The 163 Retail Park mall is a stratified seven-storey retail building and is located with a mixed integrated development known as Kiara 163.
The property has a gross floor area of approximately 76,146 sq m, comprising a net lettable area of approximately 23,740 sq m and 1,085 parking bays.
The mall is 94% occupied with over 100 tenants and brands across a wide array of tenancy mix, serving an affluent area within the vicinity of Mont Kiara, Hartamas and Segambut.
With easing inflationary pressures, a steady domestic economy, coupled with an improving tourism industry (that will be further supported by the weak ringgit), RHB Research says retail REITS should continue to be stable in 2024.
“The occupancy levels across the sector have mostly recovered. Consumer spending in the malls under our coverage should also be supported by the relatively resilient demand from consumers in the higher income group, as well as higher spending from the recovering tourism industry.
“Overall, we expect rental reversions to normalise at mid-single digit in 2024, following the higher-than-expected rental reversions in 2023,” says the research house in a report.
Meanwhile, Aminvestment Bank in a report says YTL-REIT’S acquisition of the Syuen Hotel will help the group capitalise on the anticipated resurgence in the country’s tourism sector.
The research house says it view the acquisition positively, especially due to its strategic location and variable rental agreement plan for the property.
“The government’s initiatives such as the enhancement of visa-on-arrival facilities, social visit passes and multiple entry visas are expected to bolster Tourism Malaysia’s 2024 projection of international tourist arrivals in Malaysia growing 24% year-on-year to 20 million.”
The Syuen Hotel was officially opened on Oct 24, 1993. It was shut down on May 31, 2020, due to the impact of the Covid-19 pandemic.
The hotel will be renovated and is proposed to be reopened under the AC Hotels by Marriott brand.
Aminvestment Bank says the acquisition will see YTL-REIT’S financial year 2024 debt-to-asset ratio increase to 0.43 times from 0.42 times, adding that it is maintaining its earnings forecast for the REIT for now.