With more than half of the real estate investment trusts (REITs) listed on Bursa Malaysia having released their 1Q earnings results, it appears that most continue to do well despite lingering concerns of oversupply and rental pressure, especially in the office segment.
Those that are more active in terms of asset acquisition, such as CapitaMalls Malaysia Trust (CMMT) and Axis REIT, registered a strong earnings boost from the additional income contributions from newly acquired properties.
Positively, others like Quill Capita Trust and AmFIRST REIT — which have a higher portion of their assets in office properties — reported income growth as well, albeit at a more pedestrian pace. As a whole, the REITs are living up to expectations as comparably safe and high-yielding investing alternatives.
Under prevailing cautious sentiment, amid both domestic and external uncertainties, they do look fairly attractive with yields that are far higher than bank deposits. We estimate yields ranging from 5% to as high as 8.4% for the locally listed REITs.
Unsurprisingly, the larger and more liquid trusts are, on average, trading at higher valuations in terms of price-to-net asset value, and give lower yields. The three largest REITs by total asset value — Sunway REIT, Pavilion REIT and CMMT — offer yields of 5% to 5.9%.
By contrast, REITs with smaller asset portfolios and, often, lower profiles, continue to offer higher yields. For instance, mid-sized AmFIRST and Quill Capita are estimated to earn investors yields of roughly 8.4% and 7.4%, respectively.
Buying interest boosts premium on Pavilion REIT
Pavilion REIT, the largest REIT in terms of market capitalisation, is currently trading at RM1.24, about 1.3 times its net asset value of RM0.96 as at end-March.
The trust has done very well since making its debut on the local bourse in early December last year. The IPO was priced at 88 sen for retail investors. Thus, early investors would have earned some 48% in terms of capital gains in just six months.
Pavilion REIT reported revenue of RM85.3 million and income available for distribution of RM50.6 million in 1Q. The trust expects rental income to decline slightly in 2Q and 3Q, due to enhancement being undertaken in parts of the mall. This will see the transformation of roughly 68,000 sq ft of area — approximately 5% of the mall’s total net lettable area (NLA) — into a new high fashion precinct called the Fashion Avenue. The move comes on the heels of the successful creation of similarly themed Tokyo Street, which encompasses smaller-sized tenants at higher yields.
It remains well on target to hit the forecast distribution of 5.73 sen per unit, as disclosed in the prospectus. Indeed, we estimate distribution to total roughly 6.24 sen per unit for the current year. Still, as a result of its unit price gains, Pavilion REIT’s yields are expected to be the lowest among the locally listed REITs, estimated at just about 5%.
As a comparison, some of the larger retail-focused trusts listed across the straits on the Stock Exchange of Singapore are currently yielding between 5.3% and 7.2%. CapitaMall Trust, with assets totalling S$9.7 billion (RM23.77 billion), is trading at 1.1 times net asset value and estimated to yield 5.3% while Fortune REIT is trading at only 0.6 times net asset value and offers yield estimated at 7.2%. The latter owns and manages 16 suburban malls in Hong Kong.
Expansions in the pipeline
To recap, Pavilion REIT’s current portfolio consists of only two properties, the flagship Pavilion Kuala Lumpur Mall and Pavilion Tower, valued at a combined RM3.56 billion. The former is among the few premium fashion shopping malls in the country catering for the mid- to high-end segment of the population. The shopping centre also attracts more than its fair share of tourist numbers, thanks to its location in the heart of the Golden Triangle and commercial business district.
The shopping mall is valued at RM3.43 billion and has total net lettable area of almost 1.34 million sq ft. Pavilion Tower is a 20-storey office block connected to the mall. Contributions from Pavilion Tower are relatively marginal, accounting for just about 2.5% of total revenue in 1Q.
Going forward, the trust intends to stay focused on properties used solely or predominantly for retail purposes. It has the rights of first refusal for two other shopping malls — Fahrenheit88 and a yet-to-be developed neighbourhood mall in Subang Jaya — as well as for the Pavilion Mall extension. With gearing of just about 19% as at end-March, the trust has ample room to leverage for new acquisitions.
Fahrenheit88 is the former KL Plaza, located across the street from Pavilion Mall, and has about 280,000 sq ft of net lettable area (NLA). The refurbished mall opened in 2010 and is a good candidate to be Pavilion REIT’s first acquisition post-listing.
Work on the Pavilion Mall extension, which will entail some 300,000 sq ft of retail lettable area, is slated to start in 3Q12 and expected to take two to three years. Meanwhile, the mall in Subang Jaya will reportedly have NLA of roughly 400,000 sq ft and is expected to be completed by 2015.
We will continue our highlights of a few of the smaller REITs this Friday.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, May 16, 2012.
No comments:
Post a Comment