REITs on Bursa lose their shine

PETALING JAYA: The performance of real estate investment trusts (REITs) on Bursa Malaysia has been subdued since they burst into the investment scene about a year ago. At the market's close yesterday, Axis REIT finished flat at RM1.67, Tower REIT and UOA REIT were unchanged at RM1.05 and RM1.13 respectively while Starhill REIT was down 1.5 sen at 97 sen. Of the four REITs, Axis REIT has chalked up the biggest price gain since listing, rising 42 sen over its initial public offer price (IPO) of RM1.25. Starhill REIT is up one sen versus its IPO price of 96 sen. And based on yesterday's close, UOA REIT and Tower REIT are down two sen on their IPO prices of RM1.15 and RM1.07 respectively. 

REIT managers said the lacklustre performance of the four trusts was due to a combination of macro-economic factors such as higher interest rates and the tax levied on foreign investors. While researchers and analysts shared this sentiment, they said REIT managers should also seek to inject new assets into their portfolios. 

KSC Capital director of research Choong Khuat Hock said only Axis REIT had acquired new properties since it went public. “If we look at successful REITs in the region, like in Singapore and Australia for example, growth comes from the acquisition of new assets with high yields,” Choong told Starbiz.  He pointed out the price of Singapore's Ascendas REIT had doubled to S$2.20 (RM5.06) from S$1 at the end of 2003.  “Its spectacular growth is due to a successful acquisition strategy that has more than doubled its asset base over the last two years,” he said.  Choong said the Government could make REITs more attractive because their valuations were influenced by interest rates. “A rise in interest rates will negatively impact REITs as investors can enjoy more attractive returns from deposits and bonds,” he said.  He said government-linked companies (GLCs), with their large fixed-asset holdings, could lead the way by freeing up funds for capital investment in their own core businesses.  The Government, he added, could also identify one REIT to manage all GLC properties. 

Axis REIT Managers Bhd executive director Stewart LaBrooy said REITs had lost some of their shine because investors were rebalancing their portfolios due to the increase in interest rates last year.  “All the REITs are fully priced but that can change with the strengthening of the ringgit and a possible new tax structure,” he said. 

LaBrooy said the Government should also consider lowering the withholding tax to attract foreign investors.  He said the Singapore Government had halved the withholding tax on REIT distributions to foreign non-individual investors to 10% for five years beginning last year, and there was no tax on locals.  “It has proved very popular among retirees who prefer solid consistent yield for their money,” he said, adding that Axis REIT's foreign shareholding was about 8.75% at the end of last year.  LaBrooy agreed with Choong that REITs could not afford to be static, “because people will lose interest.”  “We are constantly looking for properties, particularly in the Klang Valley, to improve our asset value,” he said, adding that Axis REIT's asset value was set to expand to RM370mil with the recent purchase of a RM10.3mil logistics centre and two properties worth RM45.4mil in Petaling Jaya and Shah Alam.