Malaysian REITs in 2015 (Some Opportunities Exist)

Source: Dynaquest SPG, Kenanga Research, MIDF Research.

Potential Upside/Downside = Current Price/Net Asset Value
OP = OutPerform (more upside potential than downside risk)
UP = UnderPerform (more downside risk than upside potential)
MP = Market Perform (limited upside)

***My order of evaluation: Yield > Prospects > Discount/Premium Rate. Below are key highlights that I extracted from various sources as indicated above. And I generally ignore smaller REITs due to them being too illiquid & boring (ARREIT is an exception, covering it for a friend).

KLCCP Stapled Group (Diversified, Market Cap: RM12.583 billion)
Gotten shareholder's approval to raise funds of RM1.2b supposedly for potential asset acquisitions within KL's Golden Triangle (Suria KLCC only 60% owned, KLCC Convention Centre, Traders Hotel and Impiana Hotel. A key positive factor is PETRONAS being sole lessee of two key assets (Twin Tower & Menara 3 Petronas) under triple net lease arrangement for 15 years providing very good stability of income. OP because of acquisition prospects & triple net lease arrangement.
Kenanga Research RESULTS NOTE - KLCC STAPLED GROUP - 06 MAY 2015


Pavilion REIT (Malls, Market Cap: RM4.55 billion)
Da Men is expected to be completed in 3Q15 and Pavilion Extension done by mid FY16. The management still views the outlook for 2015 to be challenging amid weaker consumer sentiment due to GST and significant increase in the supply of new retail space in the Klang Valley hence MP rating (mall REIT usually commands a premium based on my 5 years data)
Kenanga Research RESULTS NOTE - KLCC STAPLED GROUP - 06 MAY 2015


IGB REIT (Malls, Market Cap: RM4.59 billion)
Owner of Mid Valley Megamall & The Gardens Mall. IGBREIT is unlikely to make any acquisitions in the near term despite their low gearing level of 0.32x. MP rating due to GST and retail space oversupply (mall REIT usually commands a premium based on my 5 years data)
Kenanga Research RESULTS NOTE - 29 APRIL 2015


Sunway REIT (Diversifed, Market Cap: RM4.81 billion)
Sunway Putra Mall (SPM)'s official reopening (refurbishment) with at least 50% occupancy -> 70% by Aug15. Sunway Putra Hotel (SPH) refurbishment almost completed while refurbishment for Sunway Putra Tower (SPT) is still ongoing and is expected to be fully completed by 4QCY15. Acquisition of Sunway Hotel Georgetown was completed on January 2015. MP rating due to GST (mall REIT usually commands a premium based on my 5 years data)
Kenanga Research COMPANY UPDATE - SUNWAY REIT - 16 JUNE 2015


CapitaMallsMalaysiaTrust (Malls, Market Cap: RM2.49 billion)
The acquisition of Tropicana City Mall (TCM) and Tropicana Office Tower (TCOT) is expected to complete by 3Q15. Earnings to be reflected in FY16. Strong income growth from East Coast Mall is expected to cushion the negative impact from the MRT work discruptions to Sungei Wang Plaza. Proposal for placement of new units to raise up to RM395.5m to fund its purchase of both TCM and TCOT (which have been priced at RM565.0m) is ongoing. MP rating due to GST (mall REIT usually commands a premium based on my 5 years data)
MIDF Research CMMT - DECENT 1Q15 RESULT


Axis REIT (Diversified, Market Cap: RM1.94 billion)
AXREIT has completed the acquisition of three assets, namely; (i) Axis Shah Alam DC3, (ii) Axis MRO Hub, and (iii) Axis Shah Alam DC2, and has already signed the SPA for the Industrial facility in Johor. However, the Prai asset is the only remaining asset yet to be acquired, and the due diligence is expected to be completed in 2Q15. Dividend payout increased in CY14 largely due to gains arising from disposal of Axis Plaza, this will not repeat in CY15. AXREIT also announced a 1:2 share split on 3rd March 2015, which is pending approval from SC, and to be followed by approval from unitholders. UP rating due to high premium rate leading to low yield. Way below the average REIT yield figure.
Kenanga Research RESULTS NOTE - AXIS REIT - 21 APRIL 2015


YTL Hospitality REIT (Tourism, Market Cap: RM1.35 billion)
Trust's property asset value of ~RM 3.0 billion comprising hospitality assets located in Malaysia, Japan and Australia and has more than 50% of investment in properties (by asset value) located abroad. Proposed increased in fund size from 1.324 billion units up to max of 2.125 billion units.
OP due to prospects of better earnings (weaker currency from all three countries good for tourism) and providing the best yield among all REITs.


AmanahRaya REIT (Diversified, Market Cap: RM510 million)
Earnings will be surpressed due to non-payment of rent by SilverBird Factory (11% of gross rental income) and shortfall of rental income from Wisma Amanah Raya Bhd after CIMB-IB tenancy ended in 2013. Acquired Wisma Comcorp for RM30 m in Dec 2014. Better to err on the side of caution until more information on earnings is clear. For CY15 it will be boosted by the disposal of Kontena National Distribution Centre 11 for RM34 million. Maintain MP due to uncertainty, however the good yield and discount more than offset the uncertainty.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.