REITs safe investment in volatile market

REITs safe investment in volatile market

By IZWAN IDRIS

PETALING JAYA: The local property market is on an upswing, judging from the higher sales and profits achieved by a number of developers in the quarter ended June 30.

Companies like Plenitude Bhd and UM Land Bhd saw higher-than-expected earnings, while Mah Sing Group Bhd and IGB Corp Bhd posted solid growth that met analysts' already bullish forecast.

While the robust growth outlook for these companies would continue to support their share price performances, they remained susceptible to the volatility in the stock market.

For the risk-averse investor, an alternative exposure to the booming property sector can be found in real estate investment trusts (REITs).

“Given the current market volatility with rising risk premium, we are bullish on Malaysian REITs,'' RHB Research Institute said in a recent report.

Currently, there are 12 REITs listed on Bursa Malaysia with a combined market capitalisation of more than RM5bil.

Most of the assets under the REITs are commercial buildings in prime areas with strong occupancy rates.

Among the most active players is Quill Capita Trust, which recently acquired Wisma Technip and part of Plaza Mont Kiara to boost its portfolio.

Axis REIT had also announced a string of acquisitions in recent months.

Others, like Al-Hadharah Boustead REIT, offer an opportunity to invest in syariah-compliant plantation assets, while the Al-Aqar KPJ REIT was the first Islamic healthcare REIT in the world.

Analysts said the main features of local REITs are stable earnings and income growth, which make them an attractive defensive bet at times of uncertainties.

They said the downside risk for such instruments was supported by the value of their assets holdings, as well as the yields offered.

This provides the wary investor with some degree of capital protection.

According to RHB Research, most Malaysian REITs returned 90% of their distributable income as dividends to unitholders, translating into an average forecast yield of 5.3% this year, and would rise to 6.9% in 2008 and 7% in 2009.

At these rates, the REITs offer better returns compared with the average annual income from investing in 10-year government fixed-income instruments.

Local REITs' yields are also superior compared with their counterparts in Singapore, RHB Research noted, giving them a further potential for capital appreciation.

Another kicker for the sector was expected to come in the form of new incentives to be announced in the upcoming Budget 2008.

A lower withholding tax will help improve local REITs' competitiveness against their regional peers, while the industry has also asked to be allowed to invest in project developments.