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Monday, February 23, 2009

Multiple challenges facing REITs

Like many other asset classes, Malaysia’s real estate investment trusts (REITs) have been sold down and are trading below their net asset values (NAV), made worse by the softening property market and weakening rent yields.

The challenges facing REITs is not only the negative market sentiment towards equity, but also the inability to raise capital due to tightening credit.

Despite the challenging economic conditions this year, REIT managers in the country are confident they can mitigate the impact by looking at various options to raise capital, acquiring properties prudently and focusing on existing assets to ensure strong tenancy.

Stewart LaBrooy

Axis REIT Managers Bhd chief executive officer and executive director Stewart LaBrooy said part of the growth process of a REIT was to continuously acquire properties to enlarge its portfolio.

He said Axis REIT would not discount the possibility of future acquisitions this year although it may not be as intensive as 2008.

“But any potential acquisitions will need to be yield-accretive,” he told StarBiz.

With the reclassification of Axis REIT as syariah-compliant last December, the REIT hoped to appeal to a broader investment base of both conventional and syariah funds locally and abroad to facilitate Axis REIT’s future capital raising exercises, he added.

Currently, Axis REIT’s focus is on local properties as LaBrooy believes there are still many “reitable” assets in Malaysia.

He said many companies were exploring strategies such as sale and leaseback, which would help release cash back into the business and operations.

“In addition, we are proactively engaging with property developers or contractors to produce more reitable assets,” he added.

Axis REIT, which owns 19 properties, has put on hold its acquisition plans until further capital can be raised. LaBrooy said the company had always tried to maintain a policy to cap its gearing level at 40%.

He said its gearing level was at about 34% now, which means it can still borrow RM260mil.

Axis REIT is also proceeding with refurbishment activities at three of its properties - Menara Axis, Nestle House and Crystal Plaza - which will cost about RM8mil.

The refurbishment is aimed at attracting tenants and potential clients, and sustain asset valuations.

Atrium REIT Managers Sdn Bhd chief executive officer Paul Lim said the earnings outlook for REITs for the first half year of 2009 was expected to be stable.

“But beyond that I am holding (off) optimism (until) 2010.

“The outlook is still unclear as the actual impact of the global financial meltdown is not yet felt, particularly on the rental squeeze (as) tenancies are still intact. Lower borrowing costs now may boost earnings a bit more. At the entry price today, our net earning per unit yield is in excess of 11%.

“I think it’s attractive compared with fixed deposit rates, which (are affected) by the reduction in the overnight policy rate by 75 basis points to 2.5%,” he said.

Currently, Atrium REIT is looking at logistics-based industrial assets.

Although it was in preliminary discussion with a few potential landlords, it had no plans yet for new acquisitions so far, said Lim.

For Hektar Asset Management Sdn Bhd, the manager of Hektar REIT, most of its income comes from leases to retailers.

Its retail mall properties have achieved relatively stable income, with only 26% of Hektar REIT’s monthly income tenancies expiring in 2009, while the rest of the rental income is already locked for longer term.

Datuk Jaafar Abdul Hamid

Hektar chairman and chief executive officer Datuk Jaafar Abdul Hamid said it would continue to focus on retail assets and grow its asset base via acquisitions.

He foresaw huge opportunities in shopping centres throughout Malaysia as Hektar REIT only owned 1.1 million sq ft of shopping centre space now, compared with a total of close to 90 million sq ft of shopping centre net lettable area (space for rent) in Malaysia.

Jaafar said Hektar REIT would develop new properties on a private basis through the group’s private company which is focused on developing retail assets as REITs are not allowed to develop new properties.

“We aim to develop and own world class retail shopping centres serving the needs of ordinary Malaysians,” he said.

Meanwhile, GLM REIT Management Sdn Bhd, the manager of Tower REIT, said it would continue to inject good quality and yield-accretive prime office assets in the Klang Valley into the REIT, but with greater caution and discernment.

“Our growth strategy emphasises on value and focuses on prime office buildings while maintaining uncompromising criteria for new acquisitions,” says GLM REIT chief executive officer Chan Wan Leong.

Tower REIT would continue to adopt optimal gearing levels and will actively manage the risks associated with changes in interest rates and capital markets, he said.

Chan believed that the REIT sector was still at a relatively early stage of development as there were not many players and the challenge was how to attract more REIT players and investors into the market.

“This in turn will improve liquidity and add vibrancy in the industry,” he said.

While there are challenges, Tower REIT is confident the market will improve eventually, especially with the Government’s support through its stimulus packages and fiscal policies.

By The Star (by Rachael Kam)

Decent 2009 earnings growth for developers

PROPERTY companies are still expected to turn in decent earnings growth this year, and to certain extent in 2010, due to large unbilled sales brought forward from last two years.

"Despite the resiliency as compared to the previous downturn, there is lack of re-rating catalyst for Malaysian property developers in the immediate term," ECM Libra Investment Research said in its weekly review of the property sector today.

It said, however, the key risk now was the declining sales which would hurt earnings in later part of 2010 and beyond.

"Our neutral call on the sector is maintained and we favour stock such as Sunway City now which has more stable property investment earnings as opposed to pure property developer," it said.
Meanwhile, in a separate report, ECM Libra said it was cautiously calling an''underweight'' for the construction sector in view of order book replenishment risk.

By Bernama

Gamuda pre-qualifies for RM10b Qatar projects

Gamuda Bhd, Malaysia's second biggest builder by market value, has been pre-qualified for more than RM10 billion worth of infrastructure projects in Qatar, a senior official said.

It is also bidding for several infrastructure-related jobs in Bahrain and other Asian countries, Chan Kong Wah, the managing director of Gamuda Engineering Sdn Bhd, the group's construction arm, told Business Times.

The builder has gained a strong footing in the Middle East since 2005, winning three major projects in Qatar and Bahrain, worth a combined RM4.01 billion.

It has a RM2.6 billion contract to build the New Doha International Airport (NDIA), a RM760 million deal for the Dukhan Highway project in Qatar. It also has the RM650 million job for the Sitra Causeway Bridges.

Gamuda has built a reputation for doing its work well, completing jobs ahead of schedule. This had led to an RM850 million deal for extension works at the NDIA.
The contract, awarded in 2007, was to build new pavements, aprons and a tunnel, and for mechanical and electrical works.

"There's possibly RM400 million (contracts) more to come (for the NDIA)," Chan said.

It is now looking for more jobs in the Middle East as the Dukhan Highway project is almost completed.

Work is due to finish by June 2009 and the highway will be handed over to the client, the Public Works Authority.

As for the NDIA project, a joint venture between Gamuda, Sinohydro and WCT, it is 70 per cent completed and is scheduled to finish by February next year.

Its Sitra project will also be completed by May 2010.

By Business Times (by Sharen Kaur)

Crest Builder buys Sg Buloh land

CREST Builder Holdings Bhd wholly-owned subsidiary Crest Builders Sdn Bhd (CBSB) has proposed to acquire 2.532ha in Sungai Buloh, Selangor, from Saujana Triangle Sdn Bhd for RM37.113mil.

The acquisition amount is to be satisfied by setting off the same amount against the total contract sum payable by Saujana Triangle to CBSB.

In a filing with Bursa Malaysia, Crest Builder said the proposed acquisition provided an opportunity for it and its subsidiary to increase their landbank and to own a piece of strategically located land that could be developed.

It was also to reduce part of the total amount receivable by CBSB from Saujana Triangle in the ordinary course of business.

The proposed acquisition was expected to be completed by latest mid-2009, it said.

By The Star