Image result for reits

Dr Dzulkefly Ahmad, the Health Minister plans to set up a REIT (real estate investment trust) to raise funds of up to RM3 billion to upgrade the country’s health services. What is a REIT? Are we privatising / selling off more of the country’s healthcare assets further? Bad or good idea?

A REIT is a company that owns (and operates) income-producing real estate. Dr Dzulkefly intends to unlock the hospitals assets ‘value. Let’s see how this can be done.

The hospitals are currently not income-generating. They are owned and used by the Government.

First, the hospital assets are transferred to a new entity (Newco). The Health Ministry (MOH) then signs a lease agreement with Newco to use the hospitals. Newco becomes income-generating. With that, Newco can be listed.

If MOH sells a minority stake (say 30%) to the public, MOH will still control the hospital assets through Newco. Of course, MOH now needs to pay annual leases to Newco (which it did not have to before). However, 70% of the lease will go back to MOH as Newco’s shareholder.

In conclusion, MOH gets proceeds from selling 30% of assets but pays out 30% annual leases to third parties, while still controlling the assets.