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Malaysian REITS looking good, says RHB Research

KUALA LUMPUR: RHB Research Institute says Malaysian REITS (MREITS) could be worth a look especially for investors who want to continue to have an exposure to the property sector that also offers sustainable yields.

"Unlike property developers, policy risks are minimal for MREITs," it said in a report, issued on Wednesday, July 13, followed its recent downgrade in the property sector for the second half of 2011.

"Yields have been sustainable for most REITs even during the subprime crisis in 2008, as reflected in their higher yields due to unit price compression. In general, the REITs are subject to macroeconomic risk as well as political risk," it said.

RHB Research said its picks for the MREITs were CapitaMalls Malaysia Trust, followed by Axis REIT. Despite a 5.1% on-year contraction in industrial production index for May 2011, Axis REIT was well supported by its astute REIT Manager as well as its yield accretive acquisition track record.

RHB Research said there was a need to revisit its valuations for MREITs to differentiate and reflect the risk and nature of different types of properties, which were retail, office and industrial.

Some potential new listings of REITs are scheduled in the pipeline, such as Pavilion REIT, Axis Global REIT and cross-border Qatar REIT (although some could be delayed)," it said.

In its analysis, it benchmarked the MREITs with the largest and hence most liquid Singapore REITs by sector (Capitamall Trust for retail, Ascendas for industrial and Capitacommercial Trust for office sectors).

RHB Research said for consistency, it used the 12-month Singapore interbank offer rate and 12-month Kuala Lumpur interbank offer rate to measure the spread.

It explained this was also to take into account the expectation of interest rate hike going forward.

"Using the same long-term average spread of SREITs — 3.18% for retail, 3.91% for industrial and 3.65% for office/commercial, on top of the current 3.5% yield of 12MKLIBOR, our revised target yield for the retail MREITs is 6.65%, industrial is 7.41% and office/commercial is 7.15%," it said.

As retail and office assets account for 70% and 30% of Sunway REIT's total assets, RHB Research's revised weighted average target yield for the REIT is 6.8%.

The research house's valuations of all the REITs under its coverage were adjusted (based on CY2012 dividend per unit estimate) as it had previously used a fixed 7% target yield, regardless of the nature of the REITs.

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