Axis REIT to become syariah-compliant?

NEWEST ASSET: Menara Axis in Petaling Jaya. It is believed that Axis REIT may soon appoint a syarlah expert to conduct due diligence on its properties

AXIS Real Estate Investment Trust (REIT), Malaysia's first property trust to be listed, is studying the possibility of converting into a syariah-compliant vehicle, to appeal to a wider group of investors.

Sources told Business Times that Axis may soon appoint a syariah expert to conduct due diligence on the properties held under the REIT.

"Axis is looking at syariah-compliant REIT to have a wider pool of investors who can invest in the trust," the source said.

Axis has some RM700 million worth of properties under the REIT in commercial, light industrial, logistics and warehouse retail facilities.

Officials from Axis REIT could not be contacted for confirmation.

According to the Securities Commission guideline for Islamic REITs, syariah-compliant assessments must be carried out by an appointed syariah committee/syariah adviser to assess any property to be acquired by an Islamic REIT.

An Islamic REIT has tenants who operate permissible activities according to the Syariah. In the event that the tenant is found to operate non-permissible activities, the fund manager for the Islamic REIT must perform additional compliance assessment.

In general, a 20 per cent non-compliance leeway is allowed. This is based on total rental from non-permissible activities which will be compared to total turnover of the Islamic REIT to obtain the percentage of rental from non-permissible activities.

As per SC's requirement, an Islamic REIT must also use takaful schemes to insure its real estate, unless takaful is unable to provide the insurance coverage needed.

It was reported that Axis REIT plans to increase its real estate size to RM1 billion in 2008.

Currently, there are two listed Islamic REITs - the Al-'Aqar KPJ REIT, the first healthcare REIT in Malaysia and Al-Hadharah Boustead REIT, Malaysia's first Islamic plantation REIT.

By New Straits Times (by Vasantha Ganesan)