Strong growth potential seen in retail M-REIT division

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KUCHING: Malaysian retail Real Estate Investment Trust (REIT) players are starting to outperform other other Malaysian REITs (M-REITs) and the FBM KLCI, with some even trading at a premium to Singapore REITs (S-REITs).

This was a strong signal seen by analysts for retail REIT players and could potentially spur the growth of more REITs in the retail division.

According to HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) analyst Yee Mei Hui, due to heightened economic uncertainties, there was strong gravitation towards REITs for their resilient earnings and higher yields, and as instruments to hedge against inflation.

“Retail M-REITs offer stronger growth potential than S-REITs, premised on stronger rental reversion and more visible acquisition pipelines,” Yee underlined. “We expect the strong investor interest and tax benefits (REIT income is not taxable if distribution payout is less than 90 per cent) to encourage the launch of more retail M-REITs and unlock value.”

Yee noted that many prime malls in Malaysia were still privately owned or held by property developers or conglomerates, which implied potentially strong asset injection pipeline for existing or new REITs. Meanwhile, property analyst Loong Kok Wen from RHB Research Sdn Bhd (RHB Research) believed that M-REITs coul possibly inject more properties into its portfolios in 2013.

“Yes, the REIT sector could be seeing some asset injections in 2013 to drive future earnings and hence dividends per unit (DPU) growth,” she highlighted to The Borneo Post via email.

“Given the REITs’ current premium valuations and hence lower cost of capital as well as the low interest rate environment, the relatively higher physical asset yields suggest that most assets can still be acquired accretively.”

Loong believed that larger sponsor-backed REITs such as CMMT, Sunway REIT, Pavilion REIT and Axis REIT could have the upper hand in this situation, as these REITs have a steady flow of pipeline assets from their respective sponsors.

“Meanwhile, we believe the market is still conducive to support the financing of yield accretive acquistions by any REITs, as the demand for resilient and sustainable dividend yield stocks remains strong due to the low interest rate environment in the region.”

Meanwhile, Yee also added that she did not discount the possibility of more foreign companies launching REITs in Malaysia, like CapitaMalls Asia with CMMT.

“The launch of more REITs at new benchmark yields and positive regulatory changes (such as lower withholding tax for REIT distribution) will re-rate the sector further.”