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Restructuring to Result in Malaysia's First Stapled REIT

03/22/2013 | By Carisa Chappell

Restructuring to Result in Malaysia's First Stapled REIT

One of Malaysia’s leading commercial property companies intends to introduce the country’s first “stapled REIT,” a development that observers say could enhance the attractiveness of the country’s REIT market to investors.

KLCC Property Holdings Berhard (KLCCP) plans to fold its wholly owned assets into what will be called KLCC REIT. The interests in assets of KLCCP that are owned in joint ventures with outside partners will remain in KLCCP. The two companies will then join together to form KLCCP Stapled Group. 

Under this structure, which is currently prominent in Australia and gaining in usage in Singapore and Hong Kong, the two related entities hold separate assets. However, their stock shares are bundled together for sale on an exchange.

The iconic Petronas Twin Towers buildings will be among the properties that will be included in the portfolio of the new REIT, which is set to spin off from KLCCP in April. KLCC REIT will be three times larger than the next largest REIT in Malaysia, Sunway REIT. Some analysts are speculating that the size and structure of the new company will benefit all Malaysian REITs. 

“The market capitalization is currently $8 billion. With the listing of KLCCP as a stapled REIT, the market capitalization will rise to $13 billion, very close to Hong Kong,” said Stewart LaBrooy, chairman of the Malaysian chapter of the Asian Pacific Real Estate Association (APREA). “It will boost the liquidity in the sector and make Malaysia a more interesting destination for foreign investors.”

Foong Wai Mun, an analyst with CIMB Investment Bank, noted that more than half of Australian REITs now operate under a stapled security structure. Malaysia could follow suit, he said.

“It also helps to remove the potential conflicts of interest typically found in a developer-cum-REIT model, where the developer aims to maximize the selling price of the asset at the expense of the REIT’s yield,” he said. “Given that the market has so far accepted KLCC Property’s stapled security structure well, we expect this structure to gain popularity in Malaysia too.”

LaBrooy said KLCCP had been exploring the possibility of restructuring as a REIT following what he called the “very successful” listing of the Pavilion and IGB REITs, two new retail REITs in Malaysia that were listed in 2012.

LaBrooy said Malaysian REITs’ low leverage coupled with the country’s reliable banking system and favorable interest rates have caught the eye of investors. In general, REITs in Malaysia are optimistic about their prospects for the rest of 2013, according to Wai Mun. 

“All of them are either working hard on enhancing the potential of their existing assets or scouting around for potential acquisition opportunities, wanting to take advantage of the current low financing-cost environment,” he said.