MRMA suggests higher free float of Airport REIT to gain more foreign interest

KUALA LUMPUR (Nov 12): Malaysian Real Estate Investment Trust (REIT) Managers Association (MRMA) suggested the government consider increasing the free float of the Airport REIT (AREIT) to more than 30% of the proposed stake, in line with the Bursa Malaysia's priority to attract higher foreign participation in the local capital market.

This comes after MRMA said increasing the free float will potentially increase the liquidity and tradability of the proposed AREIT. With sizeable free float, the initial public offering (IPO) will attract greater interest of funds.

"The proposed AREIT is indeed a powerful way for the government to securitise and monetise its infrastructure assets.

"We are confident that with the right pricing and valuation, the AREIT IPO will garner strong interest from both institutional and retail investors as the REIT is supported by high quality government-backed asset," MRMA chairman Datuk Jeffrey Ng said in a statement today.

Ng added that the Malaysia REIT (M-REIT) industry is seeing an exciting time ahead as Malaysia's iconic and jewelled assets are in M-REITs, which will definitely increase the visibility of M-REITs vis-à-vis its regional peers.

"The proposed world's first AREIT is a strategic way to unlock the country's aviation infrastructure value, creating a sustainable structure to fund the airports' future capital expenditure (capex) and expansion as well as igniting capital market invest.

"The government hopes to raise RM4 billion from disposal of a 30% stake in the AREIT. Imputing a certain leverage level, the property value for the REIT is estimated to be just below RM20 billion that is to be injected into the proposed REIT," said MRMA, adding the given proposal may position the REIT as one of the largest REITs in Malaysia and simultaneously boost M-REITs' combined property value by 35% to above RM70 billion.

MRMA believes the proposed AREIT forms part of the larger Malaysian agenda to stimulate growth through the revival of tourism and investments into Malaysia, apart from rationalising the country's debt burden.

"Malaysia has the right pedigree to rise to the glory days as the prevailing air and land infrastructures that we have today are far more comprehensive and integrated than a decade ago.

"The Ministry of Transport and Ministry of Tourism and Culture should jointly promote the country's excellent connectivity as enabler to boost tourism activities and simultaneously develop [tourist] attractions connected by the infrastructures," MRMA said.

It also opines to the success factors for the proposed AREIT premised on balancing growth potential vis-à-vis protecting any downside risks.

"In view that the distributable income from the AREIT is based on user fees collected from the established airport management concession holder, Malaysia Airports Holdings Bhd (MAHB), the lease structure of the REIT should have a minimal guaranteed income to protect the downside risk while unitholders may also enjoy the upside growth of the user fees derived from aeronautical revenue and non-aeronautical ([including] duty-free retail, food and beverages offerings, car park management and advertising) revenue.

"MRMA believes that the interest and tripartite minimum guarantee income between the government, the proposed AREIT and MAHB will be considered thoroughly by balancing the yield accretiveness of the REIT and income sustainability of MAHB," the statement said.

For the long term, MRMA is optimistic that the proposed REIT would perform well given that passenger traffic at 39 airports in the countries MAHB operates has been recording a healthy growth over the years.

It added that passenger traffic is supported by the International Transport Association forecast of a 3.5% compounded annual growth rate (CAGR) worldwide over the next two decades. Asia Pacific is expected to grow at a faster pace of 4.8% CAGR during the same period.

The association is encouraged by the statement from the government that other sub-sectors (hospital and rail infrastructure) may be considered for similar funding and investment structures.

This certainly bodes well with the government's plan to increase the private sector's involvement in developing these industries and alleviating the government's burden to fund capital-intensive projects. —

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