How to Make Money in REIT-Real Estate Investment Trust?

Investor usually decide to invest because they are seeking to obtain Maximum return on their investment, and we all know that a bank Fixed Deposit is not the place to attain such goal.

This will give you safety but definitely will not make you rich.


I am sure you always keeping eyes on looking into the best investments options that is available.

How to Make Money in REIT-Real Estate Investment Trust?

In order to make it less intimidating to start investing in REIT (Real Estate Investment Trust), we are going to explore what are the things to look for:

1) What is your Investment Objective?

REITS in a long term investment just like buying a property. Therefore you cannot buy REIT today and sell it in next 5 months.

2) Ability of the REIT company to meet their Forecasted Dividend Yield

REITS in Malaysia are generally returning to shareholders dividend yield of between 6.5% and 7.5%. In the short-term this is likely to be the scenario; however, in the long- term, a well-run REIT should be able to pay out dividends in excess of 10% per annum, due to, among other factors, rent increases as the market improves, as well as extraordinary gains due to capital gains on asset disposal.

3) What is your Portfolio Class Preference?

Everyone have different investment flavor.

Axis-REIT is focused on industrials offering principally office and warehouse space used by trading companies such as Fuji Photo Film, Fuji Xerox, Minolta, Ricoh, Electrolux, Philips and DHL.

The YTL–REIT is focused predominantly on the retail trade as can be seen from its investment into Starhill as well as Lot 10 Shopping Complex.

The UOA and Tower REIT have their attention focused on office space.

The KPJ Healthcare REIT, is focused on investments in hospital buildings.

4) Is the REIT Syariah Compliance Important?

Hotels for example which serve liquor is against syariah compliance.

More REIT listings expected early next year as yields fall

By Jeeva Arulampalam


Among the potential REITs that may list on Bursa Malaysia next year are Sunway City REIT and Singapore’s CapitaLand REIT

MORE real estate investment trusts (REITs) could be listed on the Malaysian bourse early next year as yields fall to levels more manageable for the issuers.
Malaysian REIT yields are averaging at some 9 per cent but issuers are holding off for yields to drop to pre-crisis levels of 6 to 7 per cent. REIT yields rose as markets were hit last year, causing huge discounts to the net asset value (NAV).

“Most investors looking to launch new REIT IPOs (initial public offerings) will want yields to come down. That depends on risk appetite and how the whole global economy pans out in the next 3 to 6 months,” said Maybank Investment Bank Bhd equities capital markets director Ramesh Manimekalanandan.

He was speaking at a press conference held in conjunction with the Malaysian REITs Investor Education Programme in Petaling Jaya, Selangor, yesterday.
Ramesh added that REIT listings could be as early as the first quarter of next year.

Among the potential REITs that may list on Bursa Malaysia next year are Sunway City Bhd’s (SunCity) REIT and Singapore’s CapitaLand Ltd REIT.
Currently, Malaysia has 13 REITs listed on Bursa Malaysia with an estimated market capitalisation of RM4.1 billion as at January 2009.

Axis REIT Managers Bhd chief executive officer and executive director Stewart LaBrooy said it did not make sense for companies to list REITs in prevailing market conditions as they will not be able to sustain the high yields.

“REIT managers are looking for acquisitions but it is hard to find acquisitions that can get you more than 9.5 per cent. It is a tough environment for REITs,” said Ramesh.

Meanwhile, LaBrooy urged retail investors to consider local REITs as an investment option for regular income and capital growth.
“The share price (of REIT) does not matter until the day you decide to exit the REIT. So if your investment horizon is for five to 10 years, the market price is just noise that happens from day to day,” said Amanahraya-REIT Managers Sdn Bhd director Sharizad Juma’at.

Am ARA REIT Managers Sdn Bhd chief executive officer Lim Yoon Peng added that investors could choose to exit during a market upcycle and re-enter when the REIT’s share price falls.

Similar to physical property, the regular dividend payment from a REIT serves as rental income while the share price gain serves as capital gain.

Individuals wanting to learn more about REITs can attend a talk held at Hilton Petaling Jaya on August 15 at 8.30am. It is jointly organised and sponsored by Axis REIT, Amanahraya-Reit, Am ARA REIT, Regroup Associates Sdn Bhd, Maybank Investment and CIMB Investment Bank Bhd.

Room for more listed REITs in Malaysia

REIT transactions account for only 11% of local market capitalisation


PETALING JAYA: Malaysia, which has 11 listed real estate investment trusts (REITs) and two property trusts, can accommodate more listed REITs to add further depth, liquidity and asset choices to the stock market.

Currently, REIT transactions account for only 11% of market capitalisation in the country compared with 52.1% in North America.

According to the latest Asian Public Real Estate Association’s weekly REIT report, Asia’s REIT industry has a market capitalisation of US$58.86bil, with Japan taking the lead with US$30.5bil.

Malaysia’s US$1.43bil in market capitalisation is behind the rest of the pack, including Singapore (US$15.1bil), Hong Kong (US$8.3bil), Taiwan (US$1.53bil) and Thailand (US$1.52bil).

Come next year, if Sunway City Bhd goes ahead with its proposed listing of its RM3.7bil REIT on the local bourse, it will be the industry’s largest. Also in the pipeline is CapitaLand Ltd’s retail REIT, which will be the first foreign-sponsored REIT on Bursa Malaysia.

Axis REIT Managers Bhd chief executive officer and executive director Stewart Labrooy said shareholders’ current expectations of high dividend yields would not be conducive for new REIT listings.

“The average prevailing yields of 8% to 10% are considered high. When the market stabilises and the unit price of REIT goes up, yields should come back down again to around 7% to 8%. When that happens, it will be a better time for new REITs to be listed,” he said.

Although the market environment has turned more positive following the Government’s liberalisation measures, Labrooy said there was a need to create a more attractive tax regime for REIT investors in relation to withholding tax.

“We would like to see distributions for Malaysian REITs not to be taxed to promote greater retail participation. A higher retail investor participation in the market will create a higher liquidity and trade volume,” he said.

He lauded the Securities Commission (SC) for doing a great job in supporting the local REIT industry by constantly engaging with industry players for feedback and acting on them.

“There was a complete revamp of the REITs guidelines last August. The SC has been very innovative and was the first to come out with Islamic REIT guidelines,” Labrooy said.

He said there was potential for new sectors to be introduced including toll-roads, airports, serviced apartments, university accommodation and even prisons.

In terms of total returns over the past one year, Labrooy said five Malaysian REITs (M REITs) emerged among the top 10 performing REITs in Asia. They were Al-Hadharah Boustead REIT, UOA REIT, Al-Aqar KPJ REIT, Axis REIT and AmFirst REIT.

The total returns (comprising the share value plus dividend yields) for these top performing REITs ranged from 17% to 30%.

Labrooy said M REITs had bounced back from their lows in December last year and were “displaying the true characteristics of how REITs should behave in a volatile market by making steady gains over a period.”

Although the worst may be over for M REITs as most of their unit prices have recovered to match their net asset value (NAV), there are still some challenges that need to be addressed by industry players.

“There is a need to move short-term debt into medium to long-term debt to match the leasing period and remove uncertainties of volatile interest rates. At the end of the day, it is better for industry players to opt for longer term debts and a good ratio will be 60:40 of long term to short-term debts,” he added.

There is also a need for a higher retail investor participation in the REIT market as currently the market liquidity is still low. This can be addressed by expanding portfolios and market capitalisation of each of the listed funds.

Labrooy said following the improvement in the market, Axis REIT has recently got back on its asset acquisition trail with the latest addition of a RM65mil logistics centre in Port Klang.

At the same time it is also planning a placement of 51.18 million new units into the market which will provide the funding for the purchase of an additional RM120mil of new assets which have already been identified.

“Our intended goal of achieving RM1bil in assets under management was delayed by the crisis last year but we are back on track and will continue to execute our strategy for the benefit of our unitholders,” he said.

As at June 30, Axis REIT has 19 properties under its stable with assets under management worth about RM728mil and approved fund size of 255.9 million units.

REITs Able To Attract Funds From Investors, Say Managers

PETALING JAYA, Aug 13 (Bernama) — Real estate investment trusts (REITs) enable investors to place their funds in countries where they may not have a chance to invest in properties, according to those managing REITs.

Axis REIT Managers Bhd’s chief executive officer and executive director Stewart LaBrooy said more importantly, investors could choose between different countries and at different points of the property cycle.

He said that REIT trade accounted for only 11 percent of market capitalisation in Malaysia compared to 52.1 percent for North America. “Out of the Asian REIT market with a total of US$48.23 billion, Japan took the lead of US$28.9 billion while for Malaysia, it was only US$1.18 billion,” he said at a press conference held here Thursday in conjunction with MREITs’ Investors Education Programme to be held this Saturday.

LaBrooy said in the market, Malaysia was behind countries in the region like Japan, Singapore, Hong Kong, Taiwan and Thailand.

At the press conference, AmanahRaya-JMF Asset Management Sdn Bhd’s chief executive officer Sharizad Juma’at said the importance of REITs was that it could help to develop the broader economy.

“With REITs come better transparency, efficiency, and access to stable, global and more competitively priced capital,” she said.

Sharizad said REITs have high level of corporate governance, being governed by trust deed, and stock exchange and Securities Commission regulations.
Regroup Associates Sdn Bhd’s managing director Allan Soo said the Klang Valley market slowed down in first half of 2009, with major investment transactions from local buyers at slight discount.

“The market will continue to slide gradually for rest of year and a few more transactions will occur as funds come back into the market,” he said.

The investor education programme is organised by AM ARA REIT Managers Sdn Bhd, AmanahRaya-JFM Asset Management, Axis REIT Managers, CIMB Investment Bank Bhd and Maybank Investment Bank Bhd.

Axis REIT to revamp ‘icon’ after losing Nestle as tenant


PETALING JAYA: Axis Real Estate Investment Trust (REIT) will soon lose Nestle (M) Bhd as an anchor tenant in one of its properties but it is in discussions with prospective tenants.

Before it leases out the office space, Axis REIT will renovate the property, long known as Nestle House, in Petaling Jaya to draw new tenants.

Axis REIT Managers Bhd chief executive officer Stewart LaBrooy said the group would embark on a major refurbishment called “The remaking of an Icon”.

Stewart LaBrooy … We have a substantial pipeline of properties in place

“We will be spending RM7mil to renovate and reposition the building as a 21st century icon. Renovations are targeted to be co-meted by January next year. We expect the building to be ready by 2010,” he told StarBiz.

He said changes to the exterior, interior and mechanical and electrical systems were planned.

To a question, LaBrooy said: “Nestle says that the building is too small to cater for its future needs.”

Nestle is said to be moving out from its headquarters, Nestle House, in October to Surian Tower in Mutiara Damansara.

LaBrooy said Axis REIT purchased Nestle House for its iconic status and location and was one of its best buys for the trust.

“It has one of the best locations in Petaling Jaya and our acquisition price of RM375 per sq ft was a bargain by all counts,” he said, adding that to date, the building had generated a lot of interest in the market.

“We are actively speaking to many potential tenants. The impact to the trust will be a building with better returns in the long term once the makeover is completed,” LaBrooy said.

While he remained unperturbed by Nestle’s moving, he did not disclose if the move would affect the trust.

“Our strength lies in our diverse portfolio of 19 properties as it spreads risk over a much larger base,” he said.

LaBrooy said the company was always looking for high-yielding acquisitions that would benefit the trust. “We have a substantial pipeline of properties in place,” he added.

Axis REIT’s occupancy as at March 31, rose to 95.4%, up from 95.2% as of Dec 31, 2008, with a few vacancies in its office properties.

LaBrooy said the company had positive rent reversions in the first quarter of this year. He said the rates were extremely competitive vis-a-vis the current markets and well below the rates charged in KL.

“As a result, we are getting enquiries from companies wanting to move out of KL to Petaling Jaya to reduce costs or avoid traffic woes,” he added.

For the first quarter ended March 31, Axis REIT posted a net profit of RM10.4mil, up 15.4% from RM9mil in the previous corresponding period. Revenue for the period rose to RM17.3mil from RM14.5mil a year ago.

It reported earnings per share of 4.07 sen versus 3.76 sen a year ago.

REIT firms targeting northern investors

Over RM354bil in fixed deposits, savings poised to be tapped


GEORGE TOWN: Real estate investment trust (REIT) companies are now targeting investors in the northern region, particularly the high net-worth individuals and “men on the street.”

»They hope to channel some of these funds into REIT « GAN KIM KHOON

OSK Investment Bank Bhd (equity capital markets) director Gan Kim Khoon said there were over RM354bil in fixed deposits and savings of individuals in the country waiting for REIT companies to tap.

“They hope to channel some of these funds into REITs, which are high yielding and low risk in nature,” he told StarBiz after a one-day roadshow on REITs-Investors Outreach Programme recently.

The REIT companies from Kuala Lumpur that took part in the event included Axis REIT Managers Bhd, AmFirst ARA REIT Managers and AmanahRaya-JMF Asset Management.

“Outside Kuala Lumpur, REITs have little exposure from large companies, and participation by individual investors is also small,” Gan said.

Investment in REITs presently offered the best yield, ranging from 8.5% to 12% yearly, based on current earnings, he said, adding: “In such a challenging climate, there are not that many stocks that can give you such yields. It is better than putting funds in fixed deposits.”

Stewart Labrooy … ‘After upgrading, the valuation increased to over RM140mil’

Meanwhile, Axis REIT Managers chief executive officer Stewart Labrooy said the company regularly implemented asset-enhancement exercises to increase the value of its assets.

“Last year we injected about RM3.5mil to upgrade one of our office buildings, Wisma Kemajuan, in Petaling Jaya. After upgrading, the valuation for the property increased to RM52mil, compared with the original valuation of RM29mil in 2005,” he said.

He said Axis REIT recently spent RM8mil on two of its commercial properties which were originally valued at RM106mil.

“After upgrading, the valuation increased to over RM140mil.

“Through such asset-enhancement exercises, we create more value-added space, which in turn attracts more tenants, and increases our income from rentals,” he said.

15 Responses to “How to Make Money in REIT-Real Estate Investment Trust?”

  1. […] It look like this is the second Road show after at PJ Hilton, Malaysia. Read more Malaysian Property Market Outlook and REITs and  How to Make Money in REIT-Real Estate Investment Trust? […]

  2. Lower debut for CMMT

    KUALA LUMPUR: Shares of CapitaMalls Malaysia Trust (CMMT), the largest “ pure-play” shopping mall real estate investment trust (REIT) in Malaysia, closed lower yesterday on its trading debut on Bursa Malaysia’s main market at 98 sen, 2 sen lower than its institutional price of RM1 but at par with its retail price.

    The stock opened at 98.5 sen, its high for the day, and had a low of 97.5 sen before closing the day with 11.987 million shares changing hands.

    CMMT’s initial public offering comprised 786.5 million units, of which 67.5 million were for retail investors and the rest for institutional investors.

    CapitaMall Asia Ltd chief executive officer Lim Beng Chee said he was happy with the opening price as retail investors managed to gain a premium of 0.5 sen.

    “Despite the small premium, the most important thing is that the market recognised the value and assets class hidden,” he told reporters yesterday after the listing ceremony.

    Lim said CapitaMalls Asia planned to set up a RM1bil fund within a year to build and prepare a pipeline of assets for the Malaysian property trust. “We are looking for maybe another three or four malls to add to our existing assets here in Malaysia,” he said.

    CMMT is managed by CapitaMalls Malaysia REIT Management Sdn Bhd, a joint venture between CapitaMalls Asia, which is one of Asia’s largest shopping malls developers, and Malaysian Industrial Development Finance Bhd.

    Its portfolio in Malaysia comprises three assets, namely Gurney Plaza in Penang, an interest in Sungei Wang Plaza in Kuala Lumpur and The Mines in Selangor.

    CapitaMalls Asia is part of CapitaLand Ltd, South-East Asia’s biggest developer, which owns shopping malls in China, India and Singapore.

    Meanwhile, CMMT – which is also the country’s second biggest property trust – expects to distribute its yield of 7.3% for the forecast period of 2010 and 7.6% for forecast year 2011 to retail investors based on the unit price of 98 sen.

    CapitaMalls Malaysia REIT Management chief executive officer Sharon Lim said the yield distribution was really attractive compared with some other investment yields in the market.

    “This is much more attractive than Malaysian bonds, which offer about 4% yield, as well as fixed deposit rates of about 3%,” she told reporters yesterday.

    OSK Research Sdn Bhd in its latest report stated that the dividend yield of 7.5% was “well below” the average 8.5% of other Malaysian REITs.

    It said CMMT was likely to offer very limited upside to its unit holders, at least in the medium term.

    Having said that, it added that the “premium” might be justified given that the trust would be the second largest in Malaysia, and with the largest free float of 58.3%.

    Given its defensive nature and longer-term organic growth catalyst it potentially offered, CMMT was likely to appeal to certain classes of investors only, especially those with a defensive investment strategy, it said.

  3. Why REITs should be the choice of investment

    KUALA LUMPUR: Real estate investment trusts (REITs) offer many advantages to investors who are keen to invest in the property market.

    Axis REIT Managers Bhd chief executive officer Stewart LaBrooy said what was important now to REIT players was to educate them on the benefits on investing in REITs.

    “We need to educate them as most of them are not really aware of the advantages, such as having a higher yield compared with some other investments,” he said yesterday at the Investor Insights into Malaysian REITs in 2010.

    As a result of the lack of awareness on REITs, he said, the participation from Malaysians in REITs was still small compared with other countries.

    “We have 13 REITs now listed on Bursa Malaysia that cover all types of industries. With a high dividend yield of about 7% annually, low entry cost and support with higher corporate governance, REITs should be the choice of investment,” he said, adding that the size of assets of Malaysian REITs was now about RM16bil.

    In REITs, a pool of money from investors is invested in properties such as office buildings or shopping malls and the investment is managed by REIT managers.

    LaBrooy said another advantage of investing in REITs was the tax efficiency where investors were taxed only once.

    “Apart from that, it is easy to invest in REITs as you can buy it today and sell the unit tomorrow, similar to equity stocks. Plus, REITs are a hedge against inflation,” he said, adding that they were low risks and a passive type of investment.

    He said the way REITs did its business was to make sure about 90% to 100% of its retained earnings before tax were given back to investors.

    “Last year, despite facing a global economic crisis, Malaysian REITs were still giving back about 70% to 80% of its retain earnings to investors,” he said.

    Meanwhile, touching on the outlook of residential and office market in Malaysia, CB Richard Ellis (M) Sdn Bhd executive chairman Christopher Boyd said overall, both markets were still stable.

    “For the residential market, we are still in the safe net as in Malaysia, developers are still using the method of sell-first-before-build. If you build first then sell like what is done by some other countries, then you will risk yourself of not getting buyers if suddenly problems arise, such as the economic downturn, ” he said.

  4. Axis REIT to raise RM132mil

    Company plans to use the money to buy more properties, reduce gearing


    KUALA LUMPUR: Axis REIT Managers Bhd (ARMB), the manager of the world’s first office/industrial Islamic real estate investment trust (REIT), plans to raise RM132mil next month as part of its capital management process, said chief executive officer/executive director Stewart LaBrooy.

    “The funds raised will be used to expand our property portfolio and to reduce our gearing,” he told reporters here yesterday at a media briefing in conjunction with its unaudited half yearly results announcement.

    LaBrooy said ARMB was looking to acquire two new logistics houses and a retail warehouse in Johor, as well as an office building in Cyberjaya, which would cost about RM190mil in total to add to the existing 23 assets it currently owned.

    Axis REIT properties include assets in commercial, office and industrial real estate.

    “Upon conclusion of the acquisitions, our total assets under management will be RM1.2bil from the current RM900mil,” he said, adding that on average, the group acquired about five assets annually.

    He also said ARMB planned to have at least US$500mil worth of assets so that it could attract attention from the international market and that the group was pushing hard to reach that level.

    “Our aim is to acquire good assets in good locations such as in Penang, Klang Valley and Johor Baru that can bring value and benefit to the group and also to the unit holders,” he said.

    On the group’s financial results, LaBrooy said ARMB was on the right track, with growth seen in revenue and distribution per unit compared to the preceding quarter despite the volatility in global markets.

    “This year also saw us comprehensively revalued five of our properties – Axis Shah Alam DC, BWM Centre PTP, Giant Hypermarket, Nestle Office & Warehouse and Quattro West – and this resulted in a positive change in fair value of RM9.07mil,” he said. Axis REIT, which owns mostly industrial properties, posted a 74.51% rise in net profit to RM21.87mil for the second quarter ended June 30, compared with the same quarter a year ago.

    LaBrooy attributed the jump in net profit to a combination of revaluation surplus and realised gains from distributed profit and revaluation gains. Revenue for the quarter under review stood at RM21mil, a rise of just over 21% compared with a year ago.

    LaBrooy said Axis REIT’s performance in the third quarter would improve due to the satisfactory performance of its existing portfolio and with Quattro West property coming on stream

  5. Sunway REIT sets new industry benchmark

    It makes Bursa debut with business model that adopts best practices, market disclosure and good corporate governance

    PETALING JAYA: Sunway REIT, which made its debut on Bursa Malaysia on July 8, has set a new industry benchmark in the local real estate investment trust (REIT) market (M-REIT) by adopting best practices in its business model, market disclosure and corporate governance practices.

    Sunway REIT is the largest in the country in terms of asset value at RM3.4bil. It has a total gross floor area of 8.1 million sq ft and a market capitalisation of RM2.4bil, which represents about 28% of the total market capitalisation of M-REIT.

    The trust’s eight assets comprise Sunway Pyramid Shopping Mall, Sunway Carnival Shopping Mall, SunCity Ipoh Hypermarket, Sunway Resort Hotel & Spa, Pyramid Tower Hotel, Sunway Hotel Seberang Jaya, Menara Sunway and Sunway Tower.

    According to Sunway REIT Management Sdn Bhd chief executive officer Datuk Jeffrey Ng, with three hotels in its portfolio, the management company has signed hotel master lease agreements with Sunway City Bhd’s subsidiaries, Sunway Resort Hotel Sdn Bhd and Sunway Hotel Seberang Jaya Sdn Bhd, to mitigate fluctuations in the hotel’s cyclical business.

    “The rental-guarantee floor will ensure the minimum rental for Sunway REIT’s 1,190 hotel rooms. Meanwhile, there is no limit as to how high the rental can go when the hotel market turns for the better, which will on the overall benefit the REIT’s income streams,” Ng told StarBiz.

    He said Sunway REIT was also the first local REIT to subject its IPO offer to a market price mechanism as well as allowed its asset valuation to be determined by the REIT’s prevailing unit price.

    Before the international roadshow for Sunway REIT commenced last month, the REIT manager signed up reputable cornerstone investors including the Government Investment Corp of Singapore, The Employees Provident Fund, Permodalan Nasional Bhd, and Great Eastern Life Assurance (Malaysia) Sdn Bhd, which collectively have confirmed allocation of about 14% stake in the REIT.

    It also adopted an over allotment or green-shoe option that came up to 87 million units that will function as a stabilisation mechanism during the one month “stabilising” period until Aug 8.

    “We have also proposed for up to 50% of the management fees to be paid in Sunway REIT units and this practice shows that the management company is confident in the REIT’s performance. This should translate to about 10 million units a year,” Ng said.

    To attract more global investors, Sunway REIT is working towards being included as an indexed REIT by the Brussels-based European Public Real Estate Association (Epra) and the National Assocation of Real Estate Investment Trusts (Nareit) of the United States.

    According to Ng, institutional REIT investors including pension and insurance funds, track these global standard index and use it as a benchmark to guide their investment decisions.

    “With RM1.56bil worth of free-float units, big global investors will be attracted to invest in Sunway REIT because of its liquidity. Once accepted as the benchmark indexed REIT for Malaysia, Sunway REIT will be in the global investors’ radar screen,” Ng pointed out.

    Based on the institutional offer price of 90 sen a unit, Sunway REIT offers a yield of about 7.5% for institutional investors for the financial year ending June 30, 2011.

    Retail investors can look forward to a distribution yield of 7.66%, which is higher than the 6.9% yield disclosed in the prospectus.

    The IPO raised RM1.56bil (including the over allotment of 87 million units at RM78mil), of which 44% or RM680mil were subscribed by foreign institutional funds.

    Ng said although Sunway REIT had a diversified asset portfolio, some 70% of its asset value and 67% of revenue would be from retail assets, which showed that Sunway REIT was a retail-focused REIT.

    The three retail assets have total net lettable area of 2.4 million sq ft and asset value of RM2.4mil, making it the largest retail-focused REIT locally.

    “Both the retail and institutional investors are looking at broader and longer-term investment horizon. Being a defensive REIT, unit-holders can look forward to a longer-term growth catalyst as well as low risk and stable yields.

    As long as its cashflow remains strong, the dividend payout will be 100% of total net distribution income,” Ng added.

  6. MRCB will consider setting up REIT, says CEO

    KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) will consider injecting some of its properties into a real estate investment trust (REIT) as part of the company’s growth strategy, said chief executive officer Mohamed Razeek Hussain.

    “REIT has never been (far) away from our minds. It is a strategy that we might employ in the future, perhaps in the mid to long term.

    “We are strengthening our balance sheet to enhance recurring income. When it is substantial and the time is right, we will consider,” he said after an agreement signing between MRCB and Affin Investment Bank Bhd yesterday.

    Razeek was responding to a research report earlier this month that MRCB was gearing up for a REIT.

    “For us, mid term would mean (within) three years and long term (is anything) beyond that,” he said.

    Meanwhile, MRCB plans to raise RM400mil via a guaranteed commercial paper/medium-term note (CP/MTN) programme.

    This is to finance its mixed commercial development, KL Sentral Park, which is valued at RM600mil.

    MRCB Sentral Properties Sdn Bhd, a wholly-owned unit of MRCB, has appointed Affin Investment to act as principal adviser and lead arranger for the programme, which will be guaranteed by Danajamin Nasional Bhd.

    The financial arrangement would come with an option of both floating and fixed interest rates, said Affin Investment managing director Maimoonah Mohamed Hussain.

    “The MTN allows fixed-rate funding wherein MRCB can lock in the current low rates of interest, given the environment where interest rates are trending upwards.

    “The CP, on the other hand, allows MRCB to issue short-term notes on a floating rate basis.”

    Razeek said the first tranche, worth some RM50mil, would be issued “as soon as possible”. “For future tranches, it’s up to us to draw down whenever we want,” he said.

    KL Sentral Park, which is about 18% completed, is scheduled for completion next year.

    The project will comprise five blocks of office buildings, retail shops, business centres and green spaces with a net lettable are of about 518,000 sq ft.

  7. REIT vs direct real estate investment

    INVESTING in real estate can be tricky.

    For a start, those who intend to make a quick buck by “flipping” property within a few months will find that it is risky, especially in a property market less buoyant than in Hong Kong or Singapore.

    The alternative is hard work, that is, managing residential properties (and absorbing all the hidden costs that come along with it) as long term investments, receiving rent and selling them off for a capital gain or profit.

    Another factor that may deter investors from real estate is the difficulty in raising enough capital to purchase a particular property.

    So, should you consider putting your money in a real estate investment trust (REIT) instead?

    Granted, a REIT does not comprise residential property, but if it is profit you are interested in, it may be an option.

    REITs originated in the United States in the 1960s, but it wasn’t until 2005 that Axis REIT became the first property trust to be listed on Bursa Malaysia.

    In Malaysia, there are now 14 REITs to choose from on the Main Market, offering investors a choice to own stakes in commercial, industrial, plantation and office real estate.

    Aside from being more liquid than investing in real estate, one of the reasons why REITs are more appealing than investing in actual real estate is because of its high yield.

    Gross dividend yield in the FTSE Bursa Malaysia index is about 2.9%, while the average yield for a REIT in Malaysia is about 8%.

    REITs yield higher returns because commercial real estate generates a huge amount of cash flow from rentals.

    If one invests in real estate though, it may be hard to charge the most preferred rental rate, even if the property had been purchased for a hefty price, simply due to market forces.

    As for REIT prices on the stock market, they generally tend to be “low risk” because their prices are sustained by the yield factor, hence the volatility element is reduced.

    Even so, REITs are not immune to economic difficulties.

    REITs such as AmFirst, Hektar, UOA and Axis hit their lowest point in the middle of the financial crisis in 2008 but have since recovered to their pre-crisis prices, if not better.

    Part of their recovery, says an analyst, is due to good management, good investor relations and a proven track record when it comes to acquisitions.

    Still, one critic of REITs says it is probably more worthwhile to purchase stocks of established companies if they want to play safe.

    Advocates of the property trust point to the fact that REITs are a different investment class altogether, choosing to view them as an investment that bridges the gap between a fixed deposit and the stock market.

    One drawback of REITs is their inability to benefit from capital gain, unlike real estate.

    But with REITs, returns may be secured with less risk which make them a nice way to take advantage of the big booms in the real estate market.

    Investors can do without taking on the risk of mortgage payments, unscrupulous tenants and rising tax rates.

    However, less risk obviously comes with less reward.

    Good capital appreciation is still the main factor driving demand for landed residential properties.

    Since 2008, there has been an annual compounded growth rate of 10% for capital appreciation in residential hotspots such as Petaling Jaya, Taman Tun Dr. Ismail and Mont Kiara.

    A home can go up in value ten-fold given the right market conditions, which would give one a hefty sum of money right into his or her pocket – this won’t happen with any REIT.

    Ultimately, for someone who wants to have more control of their assets and is willing to improve their value, investing in residential real estate can be a good choice.

    For someone looking for passive real estate investment, with the added benefits of portfolio diversification and liquidity, a REIT is a good option to consider.

    Think of them as allowing investors to be exposed to the real estate market without having to fork out as much capital.

    Alternatively, REITs could be purchased as part of a balanced portfolio, until one has enough capital to enter the real estate market.

  8. AmFIRST posts 6.17% revenue growth in Q1

    KUALA LUMPUR: AmFIRST Real Estate Investment Trust has registered a revenue of RM25.11mil for its first quarter ended June 30, 2010, up by 6.17% from RM23.65mil in the same quarter last year.

    Its net property income rose 15.94% to RM17.66mil from RM15.23mil previously.

    However, the company’s income after tax declined marginally to RM9.94mil from RM10.58mil previously due to higher interest expense that resulted from the overnight policy rate (OPR) hike and provision for doubtful debt, AmFIRST said in a filing to Bursa Malaysia yesterday.

    “Despite a marginal slip in income after tax for the first quarter period, we are pleased to report a positive start to the year with a fair performance of all six AmFIRST’s assets,” said Lim Yoon Peng, chief executive officer of Am ARA REIT Managers Sdn Bhd, the manager of AmFIRST

  9. Axis-REIT proposes to buy Tesco JB complex for RM75.6mil

    KUALA LUMPUR: Axis Real Estate Investment Trust (Axis-REIT) has proposed to acquire the Tesco JB hypermarket complex for a total lump-sum cash consideration of RM75.6mil from Bukit Indah (Johor) Sdn Bhd.

    The latest acquisition would increase the assets under management to over RM1.2bil, Axis-REIT said in a filing with Bursa Malaysia yesterday.

    Axis-REIT trustee, OSK Trustees Bhd, has entered into a sale and purchase agreement with Bukit Indah Johor for the proposed acquisition.

    The proposed acquisition will be funded with existing bank borrowings of Axis-REIT. Axis REIT Managers Bhd, the management company of Axis REIT, intends to utilise a debt facility of RM75.6mil from Axis-REIT’s existing credit lines.

    The proposed debt financing will increase Axis-REIT’s gearing ratio to 39% of audited total assets as at Dec 31, 2009, which is below the gearing limit of 50% prescribed by the REIT guidelines.

    Axis REIT Managers expects the proposed acquisition to contribute positively to the fund’s earnings for the financial year ending Dec 31, 2010.

    The proposed acquisition is expected to be completed on or before Oct 31.

    The Tesco JB hypermarket complex is located within the main commercial precinct of Setia EcoCity in Taman Bukit Indah, a comprehensive mixed development project

  10. PKNS to enter REIT industry

    PETALING JAYA: Selangor State Development Corp (PKNS) will be signing a series of agreements to mark its entry into the real estate investment trust (REIT) industry.

    The signing ceremony is scheduled for Thursday. PKNS’ prime properties will be put under the PKNS REIT.

    News of the company’s plan to go into the REIT business emerged last year but attempts by StarBiz to gain more information from PKNS were unfruitful.

    Reports earlier had stated that PKNS was negotiating to buy a controlling stake in a listed REIT with total assets worth more than RM600mil. Its general manager, Othman Omar, declined to name the REIT.

    He said PKNS wanted to enter the REIT market in order to grow. It would also enable PKNS to leverage on its stable of properties by doubling its value to over RM1bil.

    It would be putting Wisma PKNS, Kompleks PKNS, the 500,000 sq ft Shah Alam City Centre mall and the Shah Alam convention centre into the REIT.

    PKNS still has some 12,000 acres of landbank in Selangor, strategically located in such areas like Setia Alam, Bukit Cerakah, Gombak and Klang.

    It has vast experience in mixed development comprising offices, retail, hotel and serviced apartments, having developed among others the SACC Mall in Shah Alam and Menara PKNS in Petaling Jaya.

  11. ARREIT assets set to hit RM1.8bil next year

    It plans more acquisitions to increase its portfolio

    KUALA LUMPUR: Amanah Raya Real Estate Investment Trust (ARREIT), Malaysia’s fourth largest real estate investment trust (REIT), expects its assets to grow to RM1.8bil next year with its planned acquisition of more assets.

    Amanah Raya Bhd (ARB) group managing director Datuk Ahmad Rodzi Pawanteh said ARREIT, which currently has an asset portfolio of RM1bil, would see its asset value expand to RM1.3bil with the injection of three properties owned by the Selangor State Development Corp (PKNS).

    “This will be our fourth asset injection since our inception in 2007 with just RM340mil worth of assets, and will be the final acquisition for this year,” he told reporters yesterday after the signing of the REIT agreements between ARB and PKNS.

    Rodzi said the three PKNS properties – Menara PKNS, Kompleks PKNS and SACC Mall – were acquired for RM270mil and would be satisfied via a combination of cash and consideration units to be issued to PKNS.

    He said upon completion of the sale and purchase agreement and share agreement, PKNS was expected to own about 30% of ARREIT, whils ARB would own 33% of the REIT.

    Rodzi said that after the acquisition, ARREIT was expected to be the country’s third largest REIT in terms of asset value, overtaking YTL REIT, and behind Sunway REIT and CapitaMalls MalaysiaTrust.

    Both parties also entered into separate lease agreements for each of the three properties, with PKNS leasing the properties from ARREIT for 12 years. This would ensure 100% occupancy of the properties and provide immediate rental income to ARREIT.

    Meanwhile, PKNS general manager Othman Omar said: “PKNS will be able to unlock the market value of the three properties to be injected into ARREIT and, at the same time, it will also gain exposure to ARREIT’s existing portfolio of 15 property assets, via our future ownership of a 30% stake in ARREIT.”

    PKNS would also earn recurrent income through its investment in ARREIT, which is a quality Bursa Malaysia-listed REIT and strong growth potential.

  12. REIT managers seek waiver of withholding tax

    PETALING JAYA: Real estate investment trust (REIT) managers are hoping that the Government will waive the 10% withholding tax for resident and non-resident individuals.

    This was to raise the competitiveness of Malaysian REITs (M-REITs) and ensure the successful future launching of a national REIT which would require large foreign participation, they said.

    Malaysian REIT Managers Association (MRMA) chairman Stewart LaBrooy said the proposed reduction to nil in withholding tax for resident individuals would enable individual retail investors to partake in the growing REITs industry and create liquidity in the market.

    This is in line with the tax exemption accorded to REITs retail investors in Singapore.

    Currently, retail investors only form a small component of the unitholders’ spread and MRMA has done roadshows nationwide to create awareness of this new asset class.

    LaBrooy said the proposed reduction to nil in withholding tax for non-resident individuals would enable foreign individuals to invest in M-REITs as opposed to investing in other REIT jurisdiction such as Singapore which pays tax-exempt income distribution to foreign individuals.

    “For many years, the tax regime for M-REITs has lagged behind our neighbours in Singapore, making the latter a more attractive destination for listings,” he added.

    He said the fact that REITs behaved like bonds but traded like equities had placed them unfairly in the equity space rather than the bond space.

    “REITs mainly compete with bonds for investors who are typically long in the market but the Government has mandated that only bond dividends are completely exempted from any withholding tax, giving them an unfair advantage over the M-REITs.

    “A more attractive withholding tax regime will most definitely spur the industry in the future,” he added.

    LaBrooy said resident companies were the only group of investors with no imputed withholding tax. These investors will declare it in their respective books as “investment income”, hence they are subject to the prevailing tax rate of 25%.

    He said a reduction in tax rate by 15% would give this segment of investors a big boost and encourage them to “recycle” their capital by injecting their existing assets into REITs and continue to hold their investments in the form of REIT units.

    This will further expand the M-REIT industry.

    MRMA has also proposed that withholding tax for non-resident companies, which is currently at 25%, be lowered to 10% to be at par with Singapore REITs in order to compete for foreign funds.

    This is also to harmonise with the withholding tax applicable for non-resident institutional investors who are enjoying only a 10% withholding tax.

    Real Estate and Housing Developers Association Malaysia (Rehda) has urged the Government to launch a National Home Ownership Campaign together with the association as the accredited agent.

    This is to promote affordable home ownership among the people.

    The incentives can include stamp duty waiver, reduced home loan rates by financing institutions, discounted legal fees by Bar Council and mortgage-reducing term-assurance insurance premium.

    Rehda president Datuk Michael Yam said the campaign would help promote affordable home ownership to the bottom 40% households and advocate a “one family one house” concept for this target group.

    He said a first-time home buyers’ grant should be introduced on a percentage basis of 5% with a grant cap or ceiling price of RM25,000.

    On the real-property gains tax, which was re-introduced in January at a flat rate of 5% for all property sales within five years of purchase, Rehda appealed to the Government to not make any further changes in the coming budget “as it would only otherwise serve to reaffirm the perception of the Government’s flip-flop policies lacking in consistency and certainty.”

  13. What is REITS and how to get monthly dividend payments from it
    Personal Investing – By Ooi Kok Hwa

    A LOT of investors, especially senior citizens, are hoping to get consistent and regular dividend payments from stocks.

    In this article, we will look into constructing an investment portfolio, which consists of real estate investment trusts (REITs), to get monthly dividend payments.

    A REIT is a real estate company that pool investor funds to purchase a portfolio of properties. Normally, it has two unique characteristics: investment in income-producing properties, with almost all of its profits distributed to investors as dividends.

    From the table, based on the latest stock price (as at Oct 18) and on assumption that the same dividend payments will be paid over the next 12-month period, almost all REITs will provide about 7%-8% dividend yields. Based on our observations, most of the REITs will try to pay higher dividends over the years. Hence, if the overall economy continues to recover, some REITs may pay even higher dividends for the coming few years.

    Due to them only listing at the middle of this year, we have excluded CMMT and Sunreit.

    As mentioned earlier, a lot of retirees would like to invest in investment assets that can provide a consistent and regular dividend income. Therefore, we think that REITs can provide a good alternative to the retirees. From the table, except for Arreit, Atrium, Axreit and Hektar, all other REITs will make dividend payments twice per year. Most of them will pay their dividends in the month of February and August. Hence, if an investor would like to receive his dividends other than the above two months, he may need to diversify their REITs into holding many types of REITs.

    Based on the list of REITs in the table, we can see that, except for the month of January and April, dividend payments were being made at different months throughout the year, thus investors can receive a stream of dividend income by buying into different types of REITs.

    Investors can build a REIT portfolio consisting of a few REITs which make dividend payments at different months of the year. The following is just one of selection options available for consideration.

    Based on the current price dated on Oct 18, assuming that the same dividends will be paid in the next 12 months, a portfolio with AMfirst, Arreit, Atrium and Hektar can generate a dividend yield of more than 8% (see table). Besides, by buying with equal amount into these four REITs, investors can get dividend payments for almost every month, except for the month of January, April, July and October.

    Nevertheless, investors need to understand that the above selections are solely based on the assumption that these REITs will reward investors with the same dividends and pay during the same month as shown in the table above.

    We also understand that apart from the above four REITs, some other REITs may reward investors with even higher dividend payments.

  14. Boustead sells assets to REIT unit, then leases them back

    PETALING JAYA: Boustead Holdings Bhd plans to sell for RM189.23mil its Sabah’s Sutera estate, Taiping rubber plantation and Trong oil mill to Al-Hadharah Boustead REIT, and then lease back these assets.

    “The disposal and leaseback will allow Boustead to realise the underlying value of the plantation assets while retaining the productive use of the assets,” it told Bursa Malaysia yesterday.

    The move will result in a cash inflow for the group and its subsidiaries, which will be used to reduce bank borrowings by the group and potentially save RM9.5mil interest expense per annum for the group.

    This exercise will expand the fund’s plantation assets by 3,580ha to 19,984ha with a gross asset value of more than RM1bil.

    The enhancement in the fund’s asset value will position it competitively amongst growing REITs in Malaysia.

    The Boustead group will benefit by holding 335.91 million units in the fund, representing a 53.15% interest after the exercise.

    The purchase will be financed through a proposed placement of 75 million new units in the fund, which will increase the fund size from 557 million units to 632 million units.

  15. M-REITs on the acquisition trail

    Set to expand yield accretive and market capitalisation

    PETALING JAYA: Malaysian real estate investment trusts (M-REITs) are taking steps to expand their yield accretive potential and market capitalisation with a number of asset acquisitions underway.

    Malaysian REIT Managers Association (MRMA) chairman Stewart LaBrooy said there was a resurgence in activity in the M-REIT sector and the acquisition trail had commenced in earnest.

    In the list include AmanahRaya REIT’s planned acquisitions amounting to RM497mil; UOA REIT’s RM500mil asset purchase plan; KPJ Al-‘Aqar REIT’s purchase eight hospitals amounting to RM383mil and an Australian nursing home for RM135mil; and Axis REIT’s purchase of four major assets worth RM238mil, Stewart said.

    According to Stewart, M-REITs are getting set for a re-rating and REITs which are actively growing and have high liquidity would be rewarded with a better premium than those that have not.

    On his outlook for M-REITs in 2011, he said if the property market remained bullish through next year, it is going to be difficult to manage to get yield accretive yields as we are evidencing a compression in the yield curve.

    Stewart said it would be important that M-REITs have sponsors who can provide a pipeline of projects or stock to the REIT vehicle at reasonable returns during these times.

    With the uncertain outlook of inflation and the falling US dollars, investors are moving into hard assets like property as a hedge resulting in the rising property prices, he added.

    The current high liquidity in the capital markets in Asia has led to a boom in equities on Bursa Malaysia.

    Stewart said in such an environment, the regional bourses, including Bursa Malaysia, have outperformed the REITs around the region, including in Malaysia.

    However, selected M-REIT stocks have seen their share prices rise and in some cases prices have touched record highs as risk-adverse investors clamour for yields in a market that was getting more risk adverse.

    Stewart said demand for M-REIT units by both institutional as well as retail investors was growing as evidenced by the successful listing of Sunway REIT and CapitaMalls Malaysia Trust in July. This was because there was still a strong arbitrage of 300 basis points in the returns for REITs when compared with Government bonds and 400 basis points when compared to bank fixed deposits.

    Disclosing that there was some RM244bil held by individuals in fixed deposits and a further RM80bil held in savings accounts, he said much of the work of the MRMA was to explain to the retail investors that they should seriously consider M-REITs as an investment class.

    As the M-REITs emerge from trading below their net asset values to trading above them they now can efficiently raise capital to purchase assets without diluting unit holders. The number of M-REITs that are trading at a premium to NAV is increasing.

    Stewart said the issue of liquidity was however a concern, adding that many of the REITs did not have the liquidity to attract global investors who required that average daily turnover on the local bourse per counter exceeds US$1mil a day.

    Many stocks are still tightly held and we have to get much larger in terms of number of units in circulation and market capitalisation of at least US$500mil to qualify. It is good to note that M-REITs are taking steps to increase their size and market capitalisation and this has resulted in a total market capitalisation of RM10bil now, he pointed out.

    On initiatives by the MRMA to raise the competitiveness of M-REITs, Stewart said the association had made representations to the Finance Ministry and Pemandu (Performance Management and Delivery Unit) to get a tax regime that was aligned with Singapore, such as waiving the 10% withholding tax for resident and non-resident individuals, but did not succeed in the 2011 budget.

    We will continue to have dialogues with the regulators. We will be meeting next month to approve the proposals from our Regulatory Sub Committee that will lay out proposals for regulatory reforms for M-REITs. All these moves will bode well for the industry. Malaysia leads the region by having such an association as MRMA, he said.