REAL Estate Investment Trust (REIT) is the best ally when it comes to a balance of risk-return for long-term value investing.
The fact is, predictability is what REIT stocks offer.
While the dividend per share (DPS) of many dividend-paying companies (including blue chips) were affected post-2008 recession, the DPS of many Malaysian REITs (M-REITS) remained unscathed, which speaks volumes about the competency of the managers and defensiveness of REIT assets.
The operations of a REIT are governed by a trust deed, which specifies how the manager manages and administers the REIT in line with its objectives.
REIT is also regulated by the Securities Commission in terms of how much it could borrow to invest in real estate. This basically prevents a situation where a REIT becomes overgeared and unable to repay its debt obligations.
The best thing about REIT is its dividend-yielding nature, where it distributes up to 90 per cent of its taxable income to investors.
REIT investment has also brought a good amount of profits for its investors, averaging between six and eight per cent.
Affin Investment Bank maintains its neutral stance on the M-REIT sector.
Based on its research note in April, it said the M-REITs cycle is peaking, while the outlook for upward rental reversion appears to be moderating.
“We believe that the M-REITs sector remains a landlord’s market until 2017. Our ‘neutral’ rating is underpinned by our view that the M-REITs’ yield spread against the 10-year MGS may plateau. The stable economic growth may underpin the M-REITs’ stability amid rising inflation,” it said.
In Malaysia, there are currently 14 REIT counters and the policy of growth rests with the board of each REIT manager of the respective REITS.
With today’s economic climate, the larger M-REITs, such as those above RM1 billion in market capitalisation, are performing better than the smaller ones and command premiums to their net asset values (NAVs).
“It points to the ability of the respective REIT managers to grow the size and returns of the various trusts.
Availability of suitable assets that are yield-accretive can be very challenging, especially for the office and mall sectors, where prices are currently sky high and yields are very low.
“The acquisition policy of all the REITs now is either from third parties or from their respective promoters.
What can be done would be to allow M-REITs to develop up to 10 per cent of their asset size like in Singapore and Hong Kong, where the regulators have recognised the difficulties of REIT to grow in the traditional manner,” Axis REIT Managers Bhd (ARMB) chief executive officer Datuk Stewart LaBrooy told Property Times.
On whether there are enough assets available for M-REITs to grow, LaBrooy said there is no shortage of products coming into the market.
“There is a large number of malls and offices being built both in the Klang Valley and Johor that could, over time, become acquisition targets for M-REITs with those asset classes in mind. The glut may drive down prices and offer REITs an opportunity to acquire assets at more attractive prices. The respective managers have to be able to read the cycle and act accordingly,” he said.
“In performance terms, we have tracked the Kuala Lumpur stock exchange fairly closely and in past years outperformed the exchange.
Other M-REITs have displayed similar characteristics,” LaBrooy said.
ARMB is the manager for Axis Real Estate Investment Trust Managers Bhd (Axis REIT), which has a market cap of RM1.53 billion. The trust has 30 properties worth about RM1.52 billion.
Axis REIT is proposing to acquire three new properties for RM280.5 million.
Labrooy said the total asset value of the fund will be RM1.87 billion after the acquisition of the new properties, of which sale and purchase agreements (SAP) have been executed on August 4.
The properties are located in prime areas in Shah Alam.
Axis REIT is also in the midst of acquiring two industrial facilities in Penang, and Johor for RM191.5 million where the vendors have accepted its Letters of Offer.
With the signing of the SAP for the two industrial properties, the fund will cross the RM2 billion mark in total assets, LaBrooy said.
He added that the acquisition of all the five properties is expected to be completed by the end of this year, and they are expected to generate a net income (before financing cost) of seven per cent each.