Interesting times ahead for Malaysia's REITs industry

SINGAPORE: There are interesting times ahead for Malaysian Real Estate Investment Trusts (M-REITs) which is also set to attract new players to the market.

Sunway REIT Management Sdn Bhd chief executive officer Datuk Jeffrey Ng said with the success of the listing of M-REITs and the performance track record (total return), the industry will continue to attract new players to it.

“We wish to see the entry of REIT players that are backed by size, good quality assets and reputable promoters to grow M-REITs to the top three REITs market in the region. “Currently, the top three REITs markets in terms of market capitalisation in Asia are Japan, Singapore and Hong Kong,” he told Bernama.

When asked how he rated the local industry at present and challenges faced by players like Sunway REIT, Ng pointed out that the M-REIT industry is currently in the growth phase.

“It continues to attract the entry of not only new but large and quality REIT players as evident from the listing of Pavilion REIT and IGB REIT from the end of last year to date. The market capitalisation of M-REIT stood at RM19.3bil as at Sept 30.

“This however, is relatively small, in comparison to the Singapore REIT market,” he said. Ng noted that there were many property companies planning for REITs and this augurs well for the M-REIT industry in the future.

“One key challenge is competition. We believe that competition is inevitable and the best approach in managing this is through clearly defined growth strategies with good execution.

“We will continue to implement our growth strategies in order to maintain market dominance in M-REITs. Certain sub-sectors of the property market are heading towards more intense competition and over time, it is a survival of the fittest,” he said.

As more REITs enter the market, Ng said acquiring new assets with earnings accretive will naturally become more difficult by virtue of the compressed yields.

Touching on existing policies, he said the Securities Commission, Bursa Malaysia and the Ministry of Finance have been extremely supportive of the development and growth of M-REITs industry.

“The prevailing regulations are accommodative for expansion of the M-REITs industry. For instance, the permitted gearing limit for M-REITs is up to a maximum level of 50%.

“In our opinion, the permissible gearing limit is supportive of growth compared to a country like Sinagpore, where the gearing limit is set at 30% (without rating from credit rating agencies).

“The authorities may consider adopting Singapore's policy in allowing gearing levels to reach a maximum of 60% backed by rating from credit rating agencies,” Ng said. - Bernama

“For larger REITs, the additional 10% gearing limit is meaningful for acquisitions,” he added.

By Bernama