Size not the only factor for success of REITs

KUALA LUMPUR: The two major real estate investment trusts (REITs) listed on Bursa Malaysia this month - Sunway Real Estate Investment Trust (SunREIT) and CapitaMalls Malaysia Trust (CMMT), may have boosted the profile of Malaysian REITs (MREITs) and capture the attention of local and foreign investors, but size does not necessarily guarantee a better performance going forward, analysts said.

ECM Libra Capital Sdn Bhd research head Bernard Ching said while the REITs listed this year signified the maturing of MREITs and had managed to attract greater foreign investor participation, the performance of a trust would be dependent more on the REIT managers’ capabilities and the quality of the underlying assets injected into the REIT.

Ching said in Malaysia especially, “mega” REIT managers generally have a tough time looking for quality assets large enough to be injected into the trust, despite having greater liquidity, compared to niche and smaller REIT players. “But the larger REITs would be more on the radar of foreign fund managers because of their sheer size and visibility,” he said.

Ching said that while Malaysian investors have grown in awareness over the years in terms of investor knowledge and interest in REITs investment, the numbers were still relatively small. This despite MREITs giving two to three times better returns, compared with fixed deposit rates. “Many of the MREITs are currently giving 7% to 8% in income distribution yield,” he noted. A foreign REIT expert based in Singapore concurred with Ching that size was not the only factor to better performance for REITs. He said despite larger REITs listed on the stock exchange, MREITs were still at the infancy stage but that they were going in the right direction.

“There are still many outstanding issues that have impeded MREITs’ growth, ranging from regulatory restrictions to the lack of tax incentives for REITs players, and commercial properties in prime locations that are difficult to be placed in a trust because they don’t have strata titles and a lack of quality REIT experts and advisors to these trusts,” he said. The foreign REIT expert said there was still a lack of conviction and confidence among Malaysian investors and even some foreign investors to invest in MREITs. On the SunREIT and CMMT listing, he said the reception from local investors to the REITs were generally lukewarm, considering that both were reputable and had a good pipline of properties ready to be injected into the trusts.

“It’s still too early to tell how they will perform but they just about have it all ... the management expertise, size, and liquity to perform well, However, is there a market demand locally for these REITs?” he said.

SunREIT closed at 91 sen yesterday, which was a one sen premium over its offer price of 90 sen when it was listed on July 8.

CMMT settled at RM1.01, up one sen from its reference price of RM1 when it was listed on July 16.

By The Star