Maybank says listing of new Reits could prompt re-rating of mis-priced sector
THERE could be opportunities for investors in mis-priced Malaysian real estate investment trusts (M-Reits), some of which are trading almost 40 per cent below their net asset value (NAV).
The impending listing of a couple of big new Reits – as well as mergers and acquisitions – could revive interest and prompt a re-rating of the sector, which has fallen under the investment radar despite attractive gross dividend yields of 7 to almost 9 per cent.
M-Reits emerged from last year’s global financial crisis intact, and growth could re-start this year amid a pick-up in M&A activity as the economy improves, according to Maybank Investment analyst Ong Chee Ting.
Three Reits have already stated their intent to add a combined RM1 billion (S$422.3 million) of assets, financed by cash and new units.
Transactions are expected to rise this year after an easing of Foreign Investment Committee (FIC) guidelines last year that did away with a key vetting process on share transactions for acquisitions, mergers and takeovers.
For property transactions, FIC approval is only required if bumiputra or government interest would be reduced and the real estate is valued at RM20 million or more.
In a sector report yesterday, Maybanks’ Mr Ong says commercial properties have maintained their capital values, with shop and strata-titled offices in the Klang Valley recently transacted at gross rental yields of 5-6 per cent per annum in the secondary market.
He expects capital values to stay high this year, even though interest rates could be lifted as much as 75 basis points. Because 12-month fixed deposit rates are 2.75 per cent, investors would accept lower net rental yields, he reckons.
An anticipated boon to M-Reit sector this year could be the much-delayed listing of Sunway City Reit, with RM3-4 billion of assets that would make it the country’s largest.
Sunway City, in which the Government of Singapore Investment Corporation has about a 20 per cent stake, owns numerous valuable assets including malls, offices and hotels. It has indicated that five or six of its properties would be injected into the Reit, and Mr Ong believes a draft prospectus will be made public in a month or two.
Similarly, he believes CapitaLand could revive the planned listing of a retail Reit even though last year it grouped its Malaysian assets with other regional ones into CapitaMalls Asia and listed that entity.
The listing of a CapitaLand retail Reit in Malaysia was approved by the Securities Commission, although it is unclear if this has since lapsed. If such a Reit were to be listed, it would add another RM2-3 billion of assets to the sector.
Another, from a Qatari group with serviced residences in the Middle Eastern emirate, would add RM600 million to RM1 billion of assets.
Together, the M-Reit sector could swell by up to RM8 billion of assets this year.
Given the average asset size of the 12 existing Reits is RM735 million – and two have assets of less than RM165 million – newcomers would give the sector much-needed heft.
At RM1.55 billion, the YTL-controlled Starhill Reit is Malaysia’s biggest by asset size, but is trading around 30 per cent below its NAV. At RM2, Axis Reit is the only Reit trading above its NAV of RM1.79.
Source: Business Times, 23 Mar 2010