KUALA LUMPUR: The government’s proposal to set up the world’s first airport real estate investment trust (REIT) is expected to be finalised between the second-quarter (Q2) and third-quarter (Q3) 2019.

MayBank Iinvestment Bank Bhd aviation analyst Mohshin Aziz said the airport REIT was likely to be one year away from realisation.

“Currently, very little information is available on the structure. It is still work-in-progress pending the finalisation of the on-going regulated asset based negotiations between Malaysia Airports Holdings Bhd (MAHB) and the Malaysian Aviation Commission,” he said in a research note.

Mohshin said the new company (ReitCo) would be an added layer between the government and MAHB, citing that selected airport assets would be injected into the ReitCo.

“This is to derive an equivalent asset value of RM4 billion (for the 30 per cent stake to be sold) and later listed on Bursa Malaysia (presumably).

“The ReitCo will get rental income either directly from MAHB via the revenue share mechanism or government pays out the revenue share it receives into the ReitCo,” he added.

MAHB paid RM392 million to the government for its revenue share mechanism last year. Maybank IB expects the airport operator will pay about RM424 million this year.

Mohshin said the government planned to use the proceeds (airport REIT) and upgrade existing airports as well as to expand capacity for congested ones.

“This is a positive way to raise funds without tapping into the federal tax pool. The other airport assets that are upgraded can later be injected into the ReitCo when they turn profitable and generate sufficient income for the fund,” he said.

Mohshin said the airport REIT could be a benchmark for other initiatives, considering the government wanted to monetise other assets via the REIT structure such as hospitals and rail infrastructure.

“This structure, however, is not without its share of complexities. Airports are in constant need of maintenance capital expenditure. Most airports will reach their design capacity over a 10-year cycle and require major capacity expansion,” he said.

Mohshin pointed out that Malaysia’s REIT structure only allowed a 15 per cent provision for expansion, and this might not be sufficient for airports.

“The Malaysian REIT sector is yielding an average of 6.3 per cent in 2018. Assuming that this ReitCo pays 6.3 per cent yields, it will have to pay RM252 million in dividends for the equivalent RM4 billion asset value not owned by the government,” he said.

This did not appear to be much problem given that MAHB’s user share payment to the government exceeds RM400 million per annum and is growing in tandem with traffic growth.

The government owns all airport assets in the country and is the beneficial owner of the land title.

Maybank IB said the government had a concession agreement with MAHB for the latter to manage and operate the airports up till 2035.

In exchange, a portion of MAHB’s revenues is paid to the government, currently at 12.5 per cent.