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SIX months ago, in a column entitled “Early signs of weakness in commercial real estate” dated March 6, a review was carried out among listed Malaysian Real Estate Investment Trusts (M-REITs) in terms of the market value of their properties, and to see the impact of the pandemic on the valuation of their properties.
In summary, based on the reported data by M-REITS with the financial year-end of December 2020, there are early signs of weakness among commercial properties, but not necessarily across the board.
Even within the office, retail, or hospitality segment, M-REITs seem to be resilient enough to withstand the economic headwinds.
A quick check with M-REITs that had financial year-end outside the December period saw some material movements, but these assets were mainly confined to retail and hospitality REITs.
Among them was a RM19.1mil or 5.1% drop in The Summit Subang, USJ’s market value, owned by AmFIRST REIT, which stood at RM357.4mil against the carrying value of RM376.5mil.
Other notable changes were seen in YTL Hospitality REIT’s (YTL REIT) assets, in particular their Australian and Japanese properties.
According to YTL REIT, these assets saw an increase of RM132.3mil and RM30mil in the market value of the properties, representing an increase of 7.2% and 6% respectively. Even YTL REIT’s Malaysian hotel assets saw an improvement in value with a modest increase of RM24mil or 1.1%.
Hence, despite the lockdowns and economic challenges faced by M-REITs, we have only seen isolated cases where the value of commercial properties has declined and to the contrary, for YTL REITs, the value of its assets, even for those that are located in Malaysia, rose.
M-REITs welcomes IGB Commercial REIT
To be listed on Monday, IGB Commercial REIT (IGBCR) is coming to the market at a time when the real estate market is facing tough times.
Recent reports have suggested that the office sub-sector is facing some form of glut, not only driven by the pandemic and business closures or scale down of operations, especially with the culture of working from home, but also due to the sheer size of the incoming office supply.
In fact, the recently released data from the National Property Information Centre (Napic) for the the first half of 2021 showed occupancy rate of purpose-built office (private) in Kuala Lumpur fell to 72.2%, down 3.6 percentage points from the first half of 2020 rate of 75.8%.
Data also showed that some 70 office buildings within Kuala Lumpur or approximately 17.1% of all buildings have a vacancy rate in excess of 50%.
A year ago, this figure was 63 buildings or 15.7% of the total number of buildings. For the record, Kuala Lumpur alone has some 2.54 million square meters of available space and that represents 50.1% of Malaysia’s total vacancy of 5.07 million square meters as at end of the first half of 2021. Although no shares were offered to the public, the initial public offering (IPO) involved a restricted offer for sale (ROFS) to IGB shareholders on the basis of two IGBCR for every five IGB shares held at an offer price of RM1 per unit and a distribution-in-specie of three IGBCR for every two ROFS subscribed.