The near-term outlook appears bright for real estate investment trust (REIT) players in Malaysia with more players opting to list their ‘Crown Jewels’ such as Pavilion Shopping Mall, MidValley Megamall, The Gardens, Sunway Pyramid, Sungai Wang Plaza and so forth. This – on the back of REITs’ defensive asset nature, stable dividend stocks and strong asset bases – only serve to strengthen the future for REITs and puts Malaysia on the investment map. BizHive Weekly takes a look at the industry and what is in store ahead.
REITs: Entering the next phase of maturity
With a booming construction sector and improving retail outlook, the real estate investment trust (REIT) industry is quickly gaining traction in Malaysia since its inception in 2005.
The past two years is a testament to this trend, with big cap players listing on Bursa Malaysia in addition to injecting high-profile assets into their portfolios.
Specialists believe the diversity and depth of Malaysian REITs (M-REIT) will continue to grow over the next few years, considering that REITs was still on its nascent phase in the country.
In an environment of economic uncertainty, stock market volatility and low interest rates, REITs remain appealing due to its nature of being defensive assets and a good alternative as investors shift towards stable dividend stocks with strong asset bases.
Currently, Malaysia’s REIT’s asset mix is predominantly retail, making up about 45 per cent of the total asset mix, and 28 per cent in office space, while the remaining in other sectors.
“Since 2010, the listings of REITs with large asset bases (such as Sunway REIT, Pavillion REIT and IGB REIT all have asset value exceeding RM4 billion) have given an added liquidity boost for the M-REIT industry, thereby attracting more investors,” highlighted RAM Holdings Bhd (RAM) head of Real Estate and Construction, Thong Mun Wai in an interview with BizHive Weekly.
Thong noted that with the requirement to distribute a high proportion of its earnings to unitholders, REITs attract investors who are looking higher returns compared to deposit rates.
To recap, REITs are exempted from income tax if at least 90 per cent of income is distributed within two months of a financial year’s closure.
“Due to the robust investor demand, valuations for REITs have seen strong gains. This environment is conducive for asset owners to consider the REIT structure as a means to recycle capital,” he noted.
In a separate interview, chairman of the Malaysian REIT Managers Association (MRMA) Stewart LaBrooy charted the growth of REIT players from 2005.
“The Malaysian REIT Industry had very modest beginnings – Axis REIT was the first REIT to be listed with a market capitalisation of just over RM 300 million in August 2005,” he recalled. LaBrooy is also the chief executive officer and executive director of Axis REIT.
“Seven years down the road, M-REITs now boast a market capitalisation of RM26 billion with 16 REITs listed.
“This amazing growth has been a result of the fact that the promoters of M REITs have decided to list their ‘Crown Jewels’,” he added. “The Pavilion shopping centre, The Megamall and Gardens in Mid Valley, Sunway Pyramid, Sungai Wang, Mines Shopping Centre amd Subang Parade are examples of the high-quality mall REITs that are listed.
“Of the others, our only plantation REIT have some excellent estates in its portfolio, our hospital REIT has the high profile hospitals in its portfolio of the Industrial space there are many excellent properties in those portfolios.
“Having such high quality assets listed has meant that all REITs have performed well and gathered the attention of both the local as well as the foreign investor.
“The success of the latest REIT offerings has spurred other promoters now to step forward with listings of their own leading to the growth of the industry.”
Despite uncertainties from the global economy as well as the general election in Malaysia, REIT players will continue to drive investors seeking for defensive exposure supported with relatively better yields.
RHB Research Institute Sdn Bhd (RHB Research) analyst Loong Kok Wen believed that the Malaysian REIT industry will continue to gain momentum, with the latest listing and oversubscription of IGB REIT by 22 times, and KLCC Property expected to join the REIT arena soon.