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Quantum leap from new listings
• Quantum leap in asset size for M-REITs from new listings
Since its inception about 5 years ago, Malaysian real estate investment trust (M-REIT) as an asset class has been under appreciated by investors due to a number of factors such as low liquidity, and lack of size vis-à-vis regional REITs. However, all that is about to change with the impending listing of two mega REITs (by Malaysian standard).
The first is Sunway REIT which will be listed by 8 July and will be the largest M-REIT by asset value at RM3.7bn. The other is CapitaMalls Malaysia Trust which is tentatively slated for listing on 16 July and has asset value of RM2.1bn. Upon listing of these 2 REITs, total asset under management of M-REITs will surge from RM9.4bn now to RM15.2bn.
• Retail assets will drive REIT sector
Sunway REIT comprises of 8 retail, hospitality and office assets. Although it has a diversified portfolio, retail assets make up RM2.6bn or 69.7% of the total appraised value of
the portfolio of RM3.7bn. That puts it not only as the largest M-REIT by asset value but also with the largest retail assets, ahead of CapitaMalls Malaysia Trust and Starhill.
The largest of the 8 assets is Sunway Pyramid Mall which is valued at RM2.3bn or 61.7% of the total appraised value of the portfolio. Although Sunway REIT is diversified by underlying asset classes, it has a unique characteristic in that it is a location focus REIT as 4 of its assets i.e.
Sunway Pyramid Mall, Sunway Resort Hotel & Spa, Pyramid Tower Hotel and Menara Sunway are located in Sunway City’s flagship development, the Sunway Integrated Resort. These assets are valued at RM3.2bn or 86.8% of total portfolio.
With the listing of Sunway REIT and CapitaMalls Malaysia Trust, retail will overtake office as the largest asset class among M-REITs. Retail which currently makes up 22% of all
assets will be boosted to 45% after the listing while office will shrink from 42% to 28%.
• Further growth expected
Post listing of these two REITs, we expect further value enhancement by the sponsors/REIT managers via rent reversion as well as yield accretive acquisitions. Sunway City, the sponsor of Sunway REIT, is the developer of the award-wining Sunway Integrated Resort. Besides the 8 prime assets which will be injected into Sunway REIT, Sunway City
has a pipeline of future assets worth RM2.6bn which can be injected into Sunway REIT.
To provide certainty of such future pipeline, Sunway REIT has a first right of refusal for all investment properties to be developed by Sunway City. As for CapitaMalls Malaysia Trust, little need to be said as it is backed by the largest developer and REIT player in South East Asia, the Singapore-listed CapitaLand Group.
CapitaLand's real estate and hospitality portfolio, which includes homes, offices, shopping malls, serviced residences and mixed developments, spans more than 110 cities in over 20
countries. Besides CapitaMalls Malaysia Trust, CapitaLand is also the sponsor/manager of CapitaMall Trust, CapitaCommercial Trust, Ascott Residence Trust, CapitaRetail China Trust and Quill Capita Trust.
Besides asset acquisitions, Sunway REIT and CapitaMalls Malaysia Trust will likely to gain from rent reversion. The former has retail and office space accounting for 59.7% and 39.9% of gross rental due for renewal in FY2011. As for the latter, it has retail space which makes up 43.5% of gross rental due for renewal in FY2011.
• Dividend yield lower than peers but justified
Based on their respective prospectus, Sunway REIT and CapitaMalls Malaysia Trust will be listed at indicative distribution yield of 6.9% and 6.8% respectively for FY2011.
Based on their respective prospectus, Sunway REIT and CapitaMalls Malaysia Trust will be listed at indicative distribution yield of 6.9% and 6.8% respectively for FY2011. Although
these two REITs will be listed at lower distribution yield than average yield of 8.7% of existing M-REITs, we believe the rate of return is still attractive for the following reasons:
• Higher than inflation rate of 1.4% (as of May 2010). Real rates of return for Sunway REIT and CapitaMalls Malaysia Trust are 5.4% and 5.3% respectively.
• Higher than cash return which yield 4.1% for 10-year MGS and 2.7% for 12-month fixed deposit.
• Justifiable liquidity premium over existing M-REITs. Using the more established Singapore REITs (S-REITs) as benchmark, we noted that CapitaMall Trust, the largest and most liquid S-REIT, trades at 1.8% yield premium which is similar to the 1.8% - 1.9% premium Sunway REIT and CapitaMalls Malaysia Trust have over existing MREITs (refer to figure 12).
• Both REITs offer higher yield than the 4.0% dividend yield of KLCC. We believe the combination of small market capitalisation and low trading volume of existing M-REITs have resulted in investors opting for exposure to bigger cap investment property companies such as KLCC despite lower dividend yield. However, we believe this gap to narrow upon listing of Sunway REIT and CapitaMalls Malaysia Trust.
• Quantum leap in asset size for M-REITs from new listings
Since its inception about 5 years ago, Malaysian real estate investment trust (M-REIT) as an asset class has been under appreciated by investors due to a number of factors such as low liquidity, and lack of size vis-à-vis regional REITs. However, all that is about to change with the impending listing of two mega REITs (by Malaysian standard).
The first is Sunway REIT which will be listed by 8 July and will be the largest M-REIT by asset value at RM3.7bn. The other is CapitaMalls Malaysia Trust which is tentatively slated for listing on 16 July and has asset value of RM2.1bn. Upon listing of these 2 REITs, total asset under management of M-REITs will surge from RM9.4bn now to RM15.2bn.
• Retail assets will drive REIT sector
Sunway REIT comprises of 8 retail, hospitality and office assets. Although it has a diversified portfolio, retail assets make up RM2.6bn or 69.7% of the total appraised value of
the portfolio of RM3.7bn. That puts it not only as the largest M-REIT by asset value but also with the largest retail assets, ahead of CapitaMalls Malaysia Trust and Starhill.
The largest of the 8 assets is Sunway Pyramid Mall which is valued at RM2.3bn or 61.7% of the total appraised value of the portfolio. Although Sunway REIT is diversified by underlying asset classes, it has a unique characteristic in that it is a location focus REIT as 4 of its assets i.e.
Sunway Pyramid Mall, Sunway Resort Hotel & Spa, Pyramid Tower Hotel and Menara Sunway are located in Sunway City’s flagship development, the Sunway Integrated Resort. These assets are valued at RM3.2bn or 86.8% of total portfolio.
With the listing of Sunway REIT and CapitaMalls Malaysia Trust, retail will overtake office as the largest asset class among M-REITs. Retail which currently makes up 22% of all
assets will be boosted to 45% after the listing while office will shrink from 42% to 28%.
• Further growth expected
Post listing of these two REITs, we expect further value enhancement by the sponsors/REIT managers via rent reversion as well as yield accretive acquisitions. Sunway City, the sponsor of Sunway REIT, is the developer of the award-wining Sunway Integrated Resort. Besides the 8 prime assets which will be injected into Sunway REIT, Sunway City
has a pipeline of future assets worth RM2.6bn which can be injected into Sunway REIT.
To provide certainty of such future pipeline, Sunway REIT has a first right of refusal for all investment properties to be developed by Sunway City. As for CapitaMalls Malaysia Trust, little need to be said as it is backed by the largest developer and REIT player in South East Asia, the Singapore-listed CapitaLand Group.
CapitaLand's real estate and hospitality portfolio, which includes homes, offices, shopping malls, serviced residences and mixed developments, spans more than 110 cities in over 20
countries. Besides CapitaMalls Malaysia Trust, CapitaLand is also the sponsor/manager of CapitaMall Trust, CapitaCommercial Trust, Ascott Residence Trust, CapitaRetail China Trust and Quill Capita Trust.
Besides asset acquisitions, Sunway REIT and CapitaMalls Malaysia Trust will likely to gain from rent reversion. The former has retail and office space accounting for 59.7% and 39.9% of gross rental due for renewal in FY2011. As for the latter, it has retail space which makes up 43.5% of gross rental due for renewal in FY2011.
• Dividend yield lower than peers but justified
Based on their respective prospectus, Sunway REIT and CapitaMalls Malaysia Trust will be listed at indicative distribution yield of 6.9% and 6.8% respectively for FY2011.
Based on their respective prospectus, Sunway REIT and CapitaMalls Malaysia Trust will be listed at indicative distribution yield of 6.9% and 6.8% respectively for FY2011. Although
these two REITs will be listed at lower distribution yield than average yield of 8.7% of existing M-REITs, we believe the rate of return is still attractive for the following reasons:
• Higher than inflation rate of 1.4% (as of May 2010). Real rates of return for Sunway REIT and CapitaMalls Malaysia Trust are 5.4% and 5.3% respectively.
• Higher than cash return which yield 4.1% for 10-year MGS and 2.7% for 12-month fixed deposit.
• Justifiable liquidity premium over existing M-REITs. Using the more established Singapore REITs (S-REITs) as benchmark, we noted that CapitaMall Trust, the largest and most liquid S-REIT, trades at 1.8% yield premium which is similar to the 1.8% - 1.9% premium Sunway REIT and CapitaMalls Malaysia Trust have over existing MREITs (refer to figure 12).
• Both REITs offer higher yield than the 4.0% dividend yield of KLCC. We believe the combination of small market capitalisation and low trading volume of existing M-REITs have resulted in investors opting for exposure to bigger cap investment property companies such as KLCC despite lower dividend yield. However, we believe this gap to narrow upon listing of Sunway REIT and CapitaMalls Malaysia Trust.
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