KUCHING: Malaysian Real Estate Investment Trusts (M-REITs), whose share prices are approaching target prices set by investment research houses, still offer good value as defensive plays in the volatile investment market moving forward.
The research arm of Maybank Investment Bank Bhd (Maybank Research) described the sector as ‘taking a breather’ while remaining positive over the long-term prospects of M-REITs as share prices approached its in-house target prices.
“The sector now trades at 6.8 per cent average gross yield (five per cent for retail M-REITs), just 10 basis points (bps) below 2012 Singapore REIT’s (S-REIT’s) 6.9 per cent (before 10 per cent withholding tax for foreign institutional investors).
The research team stated that M-REITs had garnered much interest as an uncertain and volatile investment climate saw most investors opting for defensive plays.
Unit prices of M-REITs under its coverage had outperformed the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) by 0.8 to 8.2 percentage points year-to-date, except for AmanahRaya REIT.
At the same time, the average yield for M-REITs had softened to 6.8 per cent compared with 7.4 per cent at end-2011. Retail M-REITs had done even better, with average yield now at 5 per cent versus 5.8 per cent at end-2011, Maybank Research said.
“The spread between yields of M-REITs and the 10-year Malaysian Government Securities’ 3.5 per cent has narrowed to 330bps from 368bps in December 2011. This is also below the historical mean of 373bps.
“Comparatively, the current S-REIT to Singapore Government Securities yield spread of 541bps makes the latter more attractive from a regional asset allocation perspective. The gap between M-REIT and S-REIT yields is now just 10bps versus 27bps at end-2011 and its historical mean of 148bps,” the research team pointed out.
Whilst retail S-REITs, with yields of 5.1 to 6.3 per cent, were cheaper than retail M-REIT yields of 4.9 to 5.6 per cent, adverse currency movements were risks for Malaysian investors seeking stable income overseas.
Maybank Research stated that the yield compression was continuing, especially among large cap retail M-REITs as investors were re-rating the sector ahead of the listing of IGB Corporation Bhd REIT.
Meanwhile, the potential ‘REIT-ing’ of KLCC Property Holdings Bhd could set a new benchmark for valuations as the property group had indicated its intention to explore a corporate structure including a REIT, the research division stated.
“The exercise could create the largest REIT in Malaysia with an asset value of over RM12 billion and improve the sector breadth and depth, making it more appealing to international investors,” it opined.
Maybank Research chose Axis REIT as its sector pick as among the M-REITs with a target price of RM2.80 per unit.
Specialising in office-industrial properties, the REIT had RM1.4 billion in investment properties located in Johor, Klang Valley, Penang, Kedah and Nilai as at March 2012.
Axis REIT offered relatively attractive gross yields of 6.3 per cent compared to the retail REITs, and a longer track record of growing its asset portfolio and dividends, Maybank Research stated.