Malaysia REITs – The Sunrise Industry
It’s high yielding, way cheaper than valuation and thrives in a low interest rate environment.
The humble REIT (or Real Estate Investment Trust) has come a long way in Malaysia over the last four years.
Since the listing of Axis REIT in August 2005, the market cap of Bursa Malaysia REITs has reached RM4.1 billion as of last Friday 20-Mar-09.
Interestingly the first listed REIT in Malaysia was not Axis REIT as is commonly believed. It was actually Arab-Malaysian Property Trust which was listed as far back as 1989. Through a series of corporate exercises it eventually became AmFIRST REIT and re-listed on 21 December 2006.
So far REITs on Bursa Malaysia have experienced a lukewarm response from investors. And 2009 is proving to be a year of consolidation for the sector.
A couple of REITs got off to a good start but since then the unit prices of all REITs have fallen way below Net Asset Value.
| REIT | Price 20/3/09 |
Net Asset Value |
Discount to NTA |
| Alaqar KPJ | 0.89 | 1.03 | 14% |
| AmFIRST | 0.84 | 1.03 | 18% |
| Amanah Raya REIT | 0.705 | 1.02 | 31% |
| Atrium | 0.62 | 1.04 | 40% |
| Axis REIT | 1.28 | 1.75 | 27% |
| BSD Reit | 1.03 | 1.49 | 31% |
| Hektar | 0.92 | 1.26 | 27% |
| Qcapita | 0.81 | 1.21 | 33% |
| Starhill REIT | 0.73 | 0.97 | 25% |
| Tower REIT | 0.875 | 1.59 | 45% |
| UOA REIT | 0.98 | 1.39 | 29% |
Huge Potential
While our REITs have come a long way, there is still so much room for growth.
The market cap of the entire REIT sector on Bursa is not even half the market cap of CapitaMall Trust in Singapore. The RM4.1 billion market cap we have is not even 1% of our overall stock market.
It will grow… it’s just a matter of time. And institutional money will eventually pour in.
If you are looking for a career, think of becoming a property funds and asset management professional. Just kidding, do something you actually love to do… if it is REIT management then fantastic 
Far from Mature
So the REIT market on Bursa Malaysia is small, has low investor participation and low trading volume. My guess is that it will take a good 15 years at least to become “mature”. This is a classic situation for mispricing due to a lack of depth and understanding. Right now we have low interest rates and high yields which is a great opportunity for investors.
Trophy Assets
Ideally the best real estate assets in the country should be placed in REITs. It would really help create an awareness of REITs. Petronas Twin Towers, Mid Valley Mega Mall, 1Utama and the likes of these… many investors would want to own a piece of these properties.
OK granted that you can own a piece of Petronas Twin Towers and Mid Valley by buying shares in KLCCP and Kris Assets but it’s not the same. Both companies pay out less than 50% of earnings in dividends and are not tax efficient as compared to holding the assets in a REIT structure.
REITs are not Stocks
Somehow I get the feeling that most investors in Malaysia don’t dig this. In reality REITs have different risk profiles. When you buy shares in say Sime Darby, you are exposed to business risks. When you invest in say TowerREIT, your income is from rental streams. It doesn’t take W Buffett to figure out that collecting rent is so much easier and safer than running a palm oil plantation, especially when you have blue chip tenants locked into long leases. There are some exceptions, for example REITs like Starhill REIT and Boustead REIT which have an element of business risk in them.
Should I Invest in REITs?
Absolutely Yes! (but not if you are a short term player). Based on current prices, they add a good yield to your portfolio. For now, collecting rent is to be preferred over operating a business
Analysis of REITs
Don’t just look at the headline yield! I will cover this in another article soon.
11.53 (0.89%)
0.000 (0.00%)
17.46 (0.16%)
March 26th, 2009 at 4:19 pm
Can’t wait for your analysis.
Honestly, I learn so much about investing from your blog. Thanks, man!
March 26th, 2009 at 4:38 pm
Could you enlighten me further with regards
to dividend payouts? Are they necessarily required to disburse 90% of their investment earnings?
Thank you.
March 27th, 2009 at 9:38 am
I am already invested in REITS and will like more information before investing additional capital.
Hope you will write your next REITs article soon.
March 27th, 2009 at 10:50 am
With the business slowly down & the tenant of REIT may shift to other place or building, REIT may not be attractive at this times even the price is below NAV. Just hold yr gun
March 27th, 2009 at 11:13 am
Hi,
The higher the discount NTA is not a good thing right? As REIT is mainly generated income form the property(assets), so which by means that the higher discount of NTA means u are buying it at a higher price of its asset. Can u clarify me at this point.
thanks!
March 27th, 2009 at 2:30 pm
Bryan – Thanks bro, glad u r blessed!
Bernard – Under our tax laws REITs are tax transparent if listed on the Bursa Malaysia and meet Securities Commission guidelines. They are tax exempt at the trust level on net income provided 90% of total income is distributed to investors.
Sally – That’s great. I’m sure you are enjoying the lucrative yield on your investments, will write the article next couple of days.
Alan – yes absolutely correct. Some REITs like Starhill REIT are feeling the pinch from their tourism assets, one of Atrium’s main tenants is vacating their Shah Alam property and so on. But in a way, its factored into the price. I bought a couple of lots in Atrium anyway coz it’s so dirt cheap. Should be some upside if they find a new tenant, otherwise will still be OK to collect 11% yield hehe.
HW, high discount is good… just like JUSCO sale
It basically means the market price of the unit on Bursa Malaysia is less than the book value of the net assets as stated in its Balance Sheet.
March 27th, 2009 at 11:30 pm
AXIS REIT NAV is RM1.75 not 2.17.
Check below link, http://mreit.blogspot.com/2009/03/march-2009.html
March 28th, 2009 at 11:52 am
Hi Remus, thanks for spotting the error, I have changed it
BTW you have a very informative site on M-REITs, keep up the great work!
March 29th, 2009 at 4:46 pm
Appreciate it if you can elaborate further on the business risk in REITs like Starhill REIT and Boustead REIT. Did you mean that these REITs are different from the rest?
March 30th, 2009 at 12:29 pm
Starhill REIT owns and operates a hotel & serviced apartments. This is different from passive ownership of property. Hotels are more like a business where the operator needs to actively manage its occupancy, room rates, F&B operations, marketing strategy etc. Customers of hotels are mainly travellers staying for a couple of nights, in contrast to tenants on long term leases.
Boustead REIT is an interesting one. It collects a fixed rental from its plantation assets plus a share of the operating profit of the plantations. So if CPO prices are down, it would affect their earnings too although not as much as mainstream plantation companies such as IOI and KLK.
March 31st, 2009 at 9:14 am
Starhill Reit operates J W Marriot which accounts for 24%, while the residences make up 9% of it’s portfolio. The rest are Lot 10 (24%), Starhill gallery (35%) and cash deposits (8%). Hope that helps.
May 10th, 2009 at 4:48 pm
Was looking around for Malaysia’s REIT. Not well-versed in it actually. Actually, I’m interested in Hectar and Starhill. One question, which REITs have lots in 1u? and is there a place for us to view their portfolio? Some of the web sites are not working =_=
May 14th, 2009 at 1:26 pm
Hi Alvin, 1utama is a privately held asset, owned by See Hoy Chan group I believe. We are currently working on a REIT portfolio section, you can also download a copy of the Starhill REIT & Hektar annual reports from Bursa Malaysia website, it will have the property portfolio info there.