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Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Wednesday, September 10, 2014

Malaysia REITs - Looking For My 2nd Durian Runtuh

What is a Real Estate Investment Trust?
REIT is a company that owns and operates income-producing real estate which covers commercial real estate sector. REIT can also lend money directly or indirectly to other companies to finance acquisition of real estate properties. REIT gives an average investor the opportunity to invest in commercial estate by purchasing a stake in a portfolio that they would not otherwise be able to purchase on their own. These companies are then able to finance their operations by raising money from your money through sales of common stocks.

You may look at my track record of BSDREIT (I highly suggest you read more of this to understand REITs) which has since went private. Here I begin my launchpad for a second time investing into a REIT. Why now? Yields have begun to look juicy and I desperately want to diversify more.

Take note of Market Capitalization (bigger is better), NAV/price (higher is better) & Premium/Discount Rate (-ve is better)

My Thoughts:
A bigger REIT has the advantage of providing ample liquidity during trading. Malls are especially big in Malaysia and diversified asset type coming in second.

Malls and retail REITs have low NAV/Price ratio (less than 1) leading to huge premium rates. As you can see the, 5 of the top 4 are all malls and you have to pay a premium due to the NAV-to-share price. They are too expensive and the valuations is hard to justify further without killing the already very low yield of ~5%-6%.

It is important to note that REITs are supposed to generate a higher returns (due to the higher risk factor) in terms of yield % than Fixed Deposits (3.5%) or Bonds (~4-5%). Because of this no big investor (fund managers) will pour more money into an already overvalued REIT that will lead to even lower yields.

As such I will put focus into drilling down into YTL, AmanahRaya and lastly AmFirst in that order. YTL is particularly interesting: it is averagely sized, has superb yield of 10% and is slightly on a discount now. Stay tuned!

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