Overweight on Malaysian REITS
Posted on | August 3, 2007
By THE EDGE
ASEAMBANKERS Equity Research continues to maintain overweight call on Malaysian REITs due to the current asset reflation play and anticipation of some incentives including a potential cut in withholding taxes at the upcoming Budget 2008 proposals.
The downside to REITs was supported by attractive dividend yields which average 6.2% for 2007, it said in a report yesterday.
“Among Malaysian REITs, we like Axis REIT, Quill Capita Trust, and Atrium REIT. Among the non-rated REITs, we like UOA REIT and Tower REIT for their exposure for shortage of prime office supply space in Kuala Lumpur at least till 2008,” it said.
Following up from recent liberalisation measures introduced for the overall property sector, it believed the next likely step was for the government to extend these incentives to Malaysian REITs.
It came to understand the government was aware of the need to make REITs more competitive vis-à-vis regional peers, and was mulling several proposals to promote the growth of REITs, including a further cut in withholding taxes on dividends payable by REITs.
“We understand that regulators are mulling up to five proposals,” it said.
It said the regulators were looking to promote more self-governance by scaling back regulatory approval requirements for asset acquisitions with cash, asset revaluation and foreign asset acquisitions.
These proposed changes are forward looking policies targeted at protecting the interests of unitholders as REITs continue to mature and grow in strength.
On development activities, Aseambankers Research said the proposed guidelines would limit to 10% of total asset value post-acquisition to curb investors’ exposure to riskier development activities.
On related party transactions, it said unitholders’ approval was required for acquisition of real estates from related parties where transacted value exceeds 5% of total assets value.
“This would help to further protect minority interests (in addition to the Trustee) as there is a visible trend among REITs to acquire properties from their sponsors in the coming years,” it added.
Aseambankers Research also expected flexibility in buying strata-title properties whereby acquisition of less than substantial control allowed provided there are disclosures of any restrictions upon divestment and this category of assets do not exceed 20% of total asset value,
It said this should help boost acquisition activities for REITs. Mixed development projects (for example with retail, office and hotel components) were common among Malaysian developers.
The relaxation of this rule would widen the scope of potential acquisitions by REIT managers, it added.
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