Tuesday April 23, 2013

Real estate investment trusts losing

lustre, investors opting for more
aggressive strategies
By NG BEI SHAN
beishan@thestar.com.my

PETALING JAYA: Local real estate investment trusts' (REITs) allure for
investors may be waning on a combination of factors including lower returns
due to REIT prices approaching target prices pegged by analysts.
Analysts said that while the industry's longer-term prospects remained
positive, REITs were now downgraded to neutral as unit prices approached
targets.
Maybank Investment Bank Bhd analyst Wong Wei Sum said the average gross
yield for Malaysian REITs was a trough of 6.4% compared to 6.6% in January
2013 and 7.4% at January 2012.
She said in a report that investors might be adopting more aggressive
strategies post-general election (GE) as some of them had used defensive
strategies after close to two years.
Investors may adopt a more aggressive approach for the property sector
favouring the high-beta developers post-GE, she added.
Other reasons for the change in weighting included competition from
business trust and potential higher overnight policy rate (OPR) in the fourth
quarter, which was expected to see a 25 basis-point hike in anticipation of a
higher inflation rate, she said.
Meanwhile, two other analysts told StarBiz that OPR estimates by their
respective research houses were maintained at healthy levels, which would
not pressure the profitability of REITs.
Wong also said: DiGi.Com Bhd, the third-largest telco in Malaysia, is mulling
over setting up a business trust, we understand. If it were to materialise,
DiGi's net dividend yield would be even more attractive than the current
level of 5.3% (financial year 2014) and more competitive than large-cap
Malaysian REITs' 4.4% (net yield).

She added that competition could also stem from asset-rich developers like
WCT Bhd, Dijaya Corp Bhd and Malaysian Resources Corp Bhd to unlock their
assets value through REITs.
An Affin Investment Bank Bhd analyst said competition posed by business trust
in the near term would be minimal as investors might need time to
understand its structure.
An RHB Research analyst said REIT sponsors had to inject at least RM1bil
worth of assets to the instruments to achieve decent viability and liquidity.
She said that judging from the current completed assets that some of the
developers had, it might take them a few more years to grow the asset sizes
before listing them as REITs.
Thus, she did not see stiff competition from the REIT universe in the near
term while KLCC Stapled REIT, which was en route to be listed this year was
already on investors' radar.
Nonetheless, she was also neutral on the sector.
Having said that, we will not see a selldown and a steep decline in REIT
prices as the sector remains a good dividend play backed by asset value.
Besides that, interest rates in the region are considered low, she said.
The Affin analyst said she maintained an overweight for the sector this
quarter but might tweak her computation following the financial results REIT
players would announce in the coming weeks.
She said yields from REITs had been compressed to historical low and might
look to downgrade the sector.
Maybank Investment has, in the report, downgraded Pavilion REIT, KLCC
Property Holdings Bhd, Sunway REIT and IGB REIT to hold while it had a buy
call on CapitaMalls Malaysia Trust.
The analyst from RHB Research said the brokerage's top pick was Pavilion
REIT due to its location, asset quality and long-term growth prospects.
When the mass rapid transit is ready, the Golden Triangle (in Kuala Lumpur)
will be more vibrant and its growth will be even more attractive, she said.
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