The REIT managers believe properties under trusts are generally more protected in terms of value compared with properties held by individual owners, as they were mostly locked-in or leased to established clients or multinationals which normally would not default on their rentals.
Axis REIT Managers Sdn Bhd chief operating officer Stewart LaBrooy said the target of 6% yield was not a problem for Axis REIT as it had a strong clientele base and that the trust was managed well.
Axis REIT, the first trust to be listed in Malaysia (in August 2005), focuses on acquiring quality office space and industrial properties.
LaBrooy said that while achieving good yield was important, it was only one measure of the performance of a REIT.
Menara Axis in Petaling Jaya - one of the stable of properties under Axis REIT
“For instance, financial backers and institutional investors view a trust favourably if it has a stable of quality properties that are in demand and consistently occupied by established tenants. There should also be a steady pipeline of properties to be placed in the REIT in the near term,” he noted.
LaBrooy said such properties not only provided good yields but also achieve attractive capital gains on their disposal.
“Undeniably, the ability of REIT managers to enhance the properties under the trust is also extremely important,” he said.
On the availability of “A” grade quality office space to be placed in a REIT, LaBrooy said there were a few locations like the KL City Centre (KLCC) and KL Sentral that could be considered in this premium category.
“We have some “A” grade office space in the Klang Valley that attracts international investors, but we need more,” he said, adding that some high-end developers were aware of the shortage and were planning to build more such properties in the near future.
“We have been talking to a few developers to see if we could team up with them to enhance properties that would appeal to such investors.”
Asked if there was sufficient land in the Klang Valley and the city centre to develop such top-grade premises, he said there was still enough land, especially in the KLCC area.
LaBrooy said there were also some large properties under government-linked companies and private owners in strategic locations that could be enhanced to provide “A” grade office and commercial space.
“But we need far greater education on the benefits of properties placed under REITs, especially to local investors, the authorities as well as developers and private owners, before any action can be taken to enhance these properties,” he said.
A local REIT expert agreed with LaBrooy that some landowners were sitting on a goldmine but were not reaping the benefits via good yield and capital gain because of the lack of knowledge about REITs.
He said Malaysian commercial and residential properties, especially in the heart of the city, were still very attractive to foreigners, if packaged well.
He also agrees that the exposure of Malaysian REITs to the US downturn would be insignificant.
“We don't see a huge negative impact on the REIT industry here as the debt exposure of US investors in the local REIT is small,” he said.
He added that Malaysia's REIT industry, while attractive in valuation, had yet to attract US investors because of the size of the trusts.
He also said a yield of 6% for Malaysian REITs was “very attainable,” despite worsening economic conditions in the US.
“But it (the yield) also depends on which sector of the REIT investors park their funds. Some stocks are more risky while others are more defensive by nature,” said the expert.
He said that for instance, office and industrial REITs were generally more defensive than hotel REITs, which were prone to cyclical demand.
A foreign-based REIT consultant said that currently, Singapore and Malaysia dominated the South-East Asia REIT market with a total market capitalisation of RM72bil.
He expects the market to grow steadily over the years with more investors – local and foreign – considering REITs in their portfolio.
“There's still good potential for the growth of REITs in these two countries which are registering yields of 3% to 4% (Singapore) and 6% to 7% (Malaysia), despite the subprime and mortgage woes in the US.”
The REIT consultant said Malaysia's REIT industry was still at the early stage of development, with many issues needed to be ironed out to make it more competitive. This include legislative changes, gearing limitations, tax breaks and foreign ownership.
“But in Singapore, the REIT industry is at the start of the take-off stage in terms of growth,” he said.
He said many of the REITs in the republic had asset size worth billions of dollars, which was another plus point for the country to attract local and international investors.
Currently, the largest Malaysian REIT in asset size is Starhill REIT, whose market capitalisation broke the RM1bil mark at the time of listing in December 2005.
But SunCity’s REIT, which is yet to be named, is highly likely to surpass Starhill REIT in asset size.
The RM3bil to RM4bil REIT is slated for listing on Bursa Malaysia in the second half of this year.
An analyst with a local research house said if this happened, SunCity’s REIT could set a new record that would raise the profile of local properties under trusts, especially in the eyes of foreign institutional investors.
A local REIT adviser concurred with the foreign REIT consultant that Malaysia's REIT industry was still at the early stage of development with good upside potential in property value and yield over time.
He said based on the Macquarie's eclipse model (see chart), the country's REIT industry was at stage 2, while Singapore at stage 3, which implies strong and steady growth.
By The Star (by Danny Yap)
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