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Monday, November 29, 2010

M-REITs on the acquisition trail

PETALING JAYA: Malaysian real estate investment trusts (M-REITs) are taking steps to expand their yield accretive potential and market capitalisation with a number of asset acquisitions underway.

Malaysian REIT Managers Association (MRMA) chairman Stewart LaBrooy said there was a resurgence in activity in the M-REIT sector and the acquisition trail had commenced in earnest.

In the list include AmanahRaya REIT's planned acquisitions amounting to RM497mil; UOA REIT's RM500mil asset purchase plan; KPJ Al-'Aqar REIT's purchase eight hospitals amounting to RM383mil and an Australian nursing home for RM135mil; and Axis REIT's purchase of four major assets worth RM238mil, Stewart said.

Steward LaBrooy ... ‘it would be important that M-REITs have sponsors who can provide a pipeline of projects or stock to the REIT vehicle at reasonable returns during these times.’

According to Stewart, M-REITs are getting set for a re-rating and REITs which are actively growing and have high liquidity would be rewarded with a better premium than those that have not.

On his outlook for M-REITs in 2011, he said if the property market remained bullish through next year, it is going to be difficult to manage to get yield accretive yields as we are evidencing a compression in the yield curve.

Stewart said it would be important that M-REITs have sponsors who can provide a pipeline of projects or stock to the REIT vehicle at reasonable returns during these times.

With the uncertain outlook of inflation and the falling US dollars, investors are moving into hard assets like property as a hedge resulting in the rising property prices, he added.

The current high liquidity in the capital markets in Asia has led to a boom in equities on Bursa Malaysia.

Stewart said in such an environment, the regional bourses, including Bursa Malaysia, have outperformed the REITs around the region, including in Malaysia.

However, selected M-REIT stocks have seen their share prices rise and in some cases prices have touched record highs as risk-adverse investors clamour for yields in a market that was getting more risk adverse.

Stewart said demand for M-REIT units by both institutional as well as retail investors was growing as evidenced by the successful listing of Sunway REIT and CapitaMalls Malaysia Trust in July. This was because there was still a strong arbitrage of 300 basis points in the returns for REITs when compared with Government bonds and 400 basis points when compared to bank fixed deposits.

Disclosing that there was some RM244bil held by individuals in fixed deposits and a further RM80bil held in savings accounts, he said much of the work of the MRMA was to explain to the retail investors that they should seriously consider M-REITs as an investment class.

As the M-REITs emerge from trading below their net asset values to trading above them they now can efficiently raise capital to purchase assets without diluting unit holders. The number of M-REITs that are trading at a premium to NAV is increasing.

Stewart said the issue of liquidity was however a concern, adding that many of the REITs did not have the liquidity to attract global investors who required that average daily turnover on the local bourse per counter exceeds US$1mil a day.

Many stocks are still tightly held and we have to get much larger in terms of number of units in circulation and market capitalisation of at least US$500mil to qualify. It is good to note that M-REITs are taking steps to increase their size and market capitalisation and this has resulted in a total market capitalisation of RM10bil now, he pointed out.

On initiatives by the MRMA to raise the competitiveness of M-REITs, Stewart said the association had made representations to the Finance Ministry and Pemandu (Performance Management and Delivery Unit) to get a tax regime that was aligned with Singapore, such as waiving the 10% withholding tax for resident and non-resident individuals, but did not succeed in the 2011 budget.

We will continue to have dialogues with the regulators. We will be meeting next month to approve the proposals from our Regulatory Sub Committee that will lay out proposals for regulatory reforms for M-REITs. All these moves will bode well for the industry. Malaysia leads the region by having such an association as MRMA, he said.

By The Star

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