Much upside for REITS

StarBiz talks to Axis REIT Managers Bhd executive deputy chairman Datuk Carl Gunnar Myhre, chief operating officer and executive director Stewart LaBrooy and director Stephen Tew on their opinions about Axis Real Estate Investment Trust (REIT) and the REIT industry in Malaysia.

Dazzling Township Sdn Bhd, a redevelopment of Lot 13 Jalan 225, Petaling Jaya


STARBIZ: How is Axis REIT performing?

LaBrooy: Well, Axis REIT is under the industrial REIT category, which traditionally offers investors lower risk, compared with other types of REITs. As for Axis REIT itself, we have been consistent in providing investors with double-digit dividend, which is better than what most REITs offer. I believe we gave nearly 13 sen dividend in our last financial year. That aside, Axis REIT is the trust that the Employees Provident Fund has invested in.

What about the REIT industry in Malaysia?

LaBrooy: There is still a lot of upside to the REIT industry in Malaysia as the properties are still relatively cheaper, compared with those in developed nations.

Myhre: Malaysian REITs have grown from one REIT with a market cap of RM300mil in 2005 to at least 11 REITs currently with a combined market cap of about RM5bil in little less than two years. We believe Malaysian REITs are now moving from the adoption phase to the growth phase and we can expect a flurry of acquisitions in the years ahead. Also, in the first quarter of 2007 the Malaysian economy witnessed RM26bil inflow of foreign funds and most of it was invested in the equity and property market, especially property stock and REITs.

Tew: Regionally we are still very cheap. We are a stable country with good infrastructure and a sizeable middle-income group and a gross domestic product growth of 5% to 6% in the past 10 years. It all contributes to the growth of the REIT industry.

Why are most of your properties acquired in Petaling Jaya and Shah Alam?

Tew: We bought a lot of properties from Cycle & Carriage along the Federal Highway last year, which is all undergoing re-modelling. A lot of people are moving from Kuala Lumpur to Petaling Jaya (PJ) and Shah Alam to live and work. It's relatively cheaper. The reason we invested in PJ and Shah Alam is because in some areas in Shah Alam there is good chance that industrial properties might become a little more commercial. We might end up converting an industrial and commercial land into an office blocks base. Tear down a factory and put up six to seven-storey blocks of offices and rent it out. When you do that, your yield will almost double. At the end of the day, what we buy are things with future value. I think this is what investment is all about.

How do you compare Axis REIT's performance with other REITs?

LaBrooy: We are a very specialised type of REIT and we have a niche in industrial properties.

How do you compete with other REITs with strong financial backing or other stocks that investors are attracted to?

LaBrooy: This is not a beauty contest, seriously. REITs don't run like equity, it's purely how much you get from investment and it is a long-term lock-in.

It's basically your defensive stock in portfolio and a proxy for liquid assets. The equity market can be very volatile whereas REITs are generally more stable. At the same time, in REITs we also look for capital appreciation.

By The Star