http://www.nst.com.my/red/reits-a-downturn-coming-1.326655
REITs - a downturn coming?
MAINTAIN: Performance in the second half of 2013 is expected to represent solid opportunities
According to several recent reports, Real Estate Investment Trusts (REITs) in Asia which were the rage last year now seem headed for a downturn, particularly in Southeast Asia and China.
Many Asian markets are suffering from the U.S. Federal Reserve‘s decision to reduce its asset purchases under quantitative easing, a move expected to hit emerging markets the most as investors returned to the developed markets in the West.
“As a result of these fundamental changes, bonds yield has been creeping up in recent months. For example, the 10-year Malaysian Government Securities (MGS) has inched from 2.5 per cent back in end-December 2012 to 3.6 per cent as at end-June 2013. Taking Singapore as a precursor, the 10-year government bond yield has increased by as much as 120 basis points (bps) since the beginning of this year. The narrowing of spreads between risk-free assets and REITs are making REITs relatively less attractive compared to say one or two years ago. The impact has been made more apparent as REITs are trading at compressed yields,” explains Datuk Jeffrey Ng, Chief Executive Officer of Sunway REIT Management Sdn Bhd.
In Malaysia, it was also reported that REITs will probably come under pressure after a research firm warned a compression in yields could affect margins. According to the report, RHB Research had advised investors to reduce their exposure to local REITs and downgraded the sector from “neutral” to „underweight“. This came after property trusts in neighbouring Singapore had experienced a selldown in June, with the FST REIT falling by 15 per cent.
However, according to Asian Public Real Estate Association (APREA) Vice President, Datuk Stewart LaBrooy, REITs cannot be benchmarked against the performance of Southeast Asian countries as they only exist in Thailand, Malaysia and Singapore. “REITs performance in the second half of 2013 represents solid opportunities for long-term traders and advanced traders, while over in Japan, Tokyo Stock Exchange Real Estate Investment Trust (TSE REIT) index which reflects the whole sector, soared 9 per cent in April 2013. In fact, so far there have not been any massive losses,” notes LaBrooy.
Ng concurs. “Regardless of the current market downturn for Malaysia REITs, fundamentally the underlying assets are still performing and will continue to deliver sustainable growth based on the current economic outlook of the country.”
Arguing that REITs are more similar to bonds, in the sense that in order to maximise interest income, investors should consider a buy-and-hold strategy, LaBrooy continues, “As opposed to equities, REITs are long-hold stock, and do not have huge swings. Yes, there might be compressed yields, but the return is close to 17 per cent.”
In the meantime, due to falling Malaysia REIT prices, distribution yield has moved up. “Although this does not have any impact on the performance and yield on the existing properties, it will be more difficult to make yield accretive acquisitions. As a rule of thumb, assets yield should generally be higher than distribution yield in order for an acquisition to be yield accretive. Where costs of debts are going up, the property yields need to be higher too. In reality, property yields have been compressed, hence, it will be difficult for REIT managers to make yield accretive acquisitions. Going forward if property yield do not move up in relation to distribution yield, then the growth of M-REITs may be stifled as they have to rely mainly on organic growth on their existing portfolio of assets,” Ng predicts.
He also suggests that in an environment where interest rate is expected to rise in the near future, “REIT managers should proactively manage their debt profile either by committing only fixed debts or converting existing floating rates debts to fixed rate via instruments such as interest rates swap ahead of the interest rate cycle.”
Upcoming REITs
As regards the new REITs, the Sunway REIT CEO says, “The increased visibility and success of M-REITs in the region amongst international investors have definitely ignited the interest of developers, contractors, and logistics with large portfolio of property investments to jump into the bandwagon. Organisations that have expressed interest in forming their own REIT include Mah Sing, Dijaya, MRCB, Naim Holdings and Tiong Nam Holdings. On the other hand, Boustead Holdings Bhd plans to privatise its Islamic Plantation REIT, Al-Hadharah Boustead REIT with pricing at an attractive premium of 16.7 per cent over its net asset value (NAV) as at 31 March 2013.”
Likewise LaBrooy agrees by saying that there are a few REITs being mooted. As regards Al-Hadharah Boustead, he says, “With commodities becoming a favoured asset class, it does have a long-term upside.”
Ng however warns, “Under the current market environment where signs of interest rates are rising, M-REITs are no longer as attractive as before as an investment class. Sponsors who are looking to unlock their assets into the M-REIT may have to accept less attractive yield and raise lesser capital from the equity market to achieve their objective of recycling capital.”
Investing in REITs became popular in 2012 as it was seen as a sound and stable form of investment. |
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发表于 25-7-2013 03:13 PM
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