New Fund: AmAsia Pacific REITs Plus

Do you remember the AmAsia Pacific REITs fund? I'm sure you have heard about it. Yes, backed by its success story, AmInvestment Management Bhd has launched a new version called AmAsia Pacific REITs Plus. The word "Plus" is used as a continuation of the AmAsia Pacific REITs and the fund may invest in listed equities in the real estate sector.

The fund aims to provide regular income and to a lesser extent capital appreciation over the medium to long term (at least 3 years) by investing in real estate investment trusts (REITs) and equities in the real estate sector.

What's the strategy?

Minimum 70% in REITs and a maximum of 29% in listed equities in real estate sector, which are in the Asia Pacific region. This is the asset allocation of the fund. Diversification in terms of country and different REITs sub-sectors (etc. residential, commercial and industrial) is expected.

An active allocation strategy will be employed by fund manager, based on macroeconomic trends and REITs market outlook of respective countries in Asia Pacific region. Meanwhile, bottom-up security selection strategy will be used for equities, with focus on undervalued companies.

Who is suitable for this fund?

• Those who wish to have investment exposure in real estate sector through a diversified portfolio of REITs and real estate equities in Asia Pacific region.
• Those seeking regular income and to a lesser extent capital appreciation over medium to long term

What's AmInvest aiming?

4% payout on yearly basis, which AmInvest said is achievable and is higher than fixed deposit rate offered by banks. AmInvest favors Australia, Singapore and Japan for REITs and China, Indonesia and Thailand for listed equities.

Click here to download the fund prospectus

New Fund: OSK-UOB Multi Asset Regular Income Fund

As investor continue to seek safe investment havens, i.e. investments that are more stable and/or of lower risk and with regular income, OSK-UOB Investment Management see opportunities in the Asia and Asia Pacific (ex Japan) region. Hence, they are now offering investors a fund that utilizes a multi-asset strategy to generate potential regular income and capital growth in a fund that invests in three yielding assets i.e. bonds, equities and REITs (real estate investment trusts) from the Asia and Asia Pacific (ex Japan) region.

The Fund is suitable for investors who:

1. seek regular income and capital growth over medium to long term;
2. are willing to accept moderate risk in their investments; and
3. wish to benefit from investment exposure in the Asian and Asia Pacific (ex Japan) region.

Tactical Asset Allocation?

Of the fund's investments, the External Investment Manager will initially invest in accordance to the allocation stated in the table below. However, for the purpose of tactical asset allocation, the manager may deviate from the stated allocation by a 10% variance for each asset class depending on the market conditions to achieve medium to long term returns.

Thus, this Fund's portfolio will be structured as follows:

• 65% - 98% of NAV
• Investments in Asian (ex Japan) debt instruments / bonds, Asia Pacific (ex Japan) dividend equities and Asia Pacific (ex Japan) REITs.
• 2% - 35% of NAV
• Investments in liquid assets including money market instruments and deposits with financial institutions.

What's the composite benchmark for this fund?

• 50% JP Morgan Asia Credit Index Total Return Composite (RM);
• 30% MSCI AC Asia Pacific ex Japan Index (RM);
• 20% MSCI AC Asia Pacific ex Japan REITs Index (RM).

Distribution Policy:

Depending on the level of income generated at each relevant period, the fund will declare distributions, if any, to unit holders QUARTERLY.

Click here to read fund's prospectus

Source: OSK-UOB Investment Management

New IPO: IGB Reit

IGB REIT comprises of Mid Valley Megamall (retail; 1.72m sf NLA) and the Gardens Mall (retail; 0.82sf NLA) with a total appraised value of RM4.6b. Currently, Mid Valley Megamall is 99.8% occupied and the Gardens Mall is 99.7% occupied. Based on the IPO price of RM1.25, IGB REIT’s market capitalization would be RM4.3bn, making it the largest pure retail M-REIT. Following closely behind IGB REIT in terms of market capitalization size is Pavilion REIT (RM4.08b), Sunway REIT (RM4.02b) and CMMT (RM3.02b).

What are the key selling points for IGB REIT?

1. Prime asset with strategic location, huge catchment area and well connected transportation networks.
   
   
   
   
   
2. Diverse based of tenants to sustain rental income.
   
   
   
3. Low gearing provides ample room for acquisition growth. Based on IGB REIT’s Pro Forma Statement of Financial position, IGB REIT’s gearing ratio upon listing will be approximately 25.8%, which is below the average of listed MREITs of approximately 29.2% as at 31 Dec 2011. Hence, for future acquisition, IGB REIT has the flexibility to borrow additional RM1.1bn before reaching the statutory gearing level of 50%.

What's the fair value?
As shown below, different research house gave different fair value by using different method of valuations. To summarize it, the fair values estimated could give investors an upside potential of between 7.2% - 16%. Does this enough for you to consider to subscribe this IPO? Anyway, only 1% of the shares were being allocated to retail investors. Good luck.

Source: Various research report

New IPO: Pavilion REIT

Are you bored of the current small market capitalization of REITs in Malaysia? I think Sunway REIT (the largest REIT right now) is by far sitting there very lonely without anyone closer to it. Come 7th December 2011, we will witnessed a new contender - Pavilion REIT, to challenge the title. Although it may started-off in 2nd place, the new REIT may grows to clinch the first place from SunREIT. Below is some info taken from RHB Research report on the IPO;

Pavilion REIT (PavREIT) has an asset size of RM3.5bn, just after the largest MREIT - Sunway REIT’s RM4.5bn. PavREIT has two assets – Pavilion KL Mall which is worth RM3.4bn and Pavilion Tower (office) RM128m.

The Prime Asset

Pavilion Mall is one of the only four premium retail malls in KL. It is designed to complement the malls along Jalan Bukit Bintang, developing the street to a key shopping destination in the region. Located at the “Golden Triangle”, which is the business, shopping, entertainment and tourism district, the mall enjoys massive catchment of population. It has an NLA of 1.33m sqf.

Since it commenced its operations in late 2007, occupancy has consistently stayed above 96%, with a 3-year CAGR of 4% in average rental rate. With such a short operating history, the mall has recorded 31m visits in 2010, comparable to Suria KLCC’s 40m footfalls. Over the longer term, Pavilion Mall is poised to enjoy higher number of visits as it will sit near to the upcoming MRT station, which is less than 300m away. The covered skybridge currently under construction that connects Pavilion Mall and KL Convention Centre which in turn adjoins Suria KLCC and the Petronas Twin Towers, will also pull in more shopper traffic between the two tourist spots.

The Pavilion Tower (NLA of 167k sqf) is an office tower connected to Pavilion Mall. It currently has an occupancy rate of 41.4% (expected to achieve 80% by year end), housing Malton roup, Mrail International, Clever Eagle and Aker Engineering (from 1st July). As the office tower only contributes about 2% to total rental income, coupled with the oversupply of office space in KL city centre, we are neutral on this commercial asset.

Future Growth Potential

Three other retail assets can potentially be injected in future for growth. PavREIT has been granted rights of first refusals (ROFR) by its sponsor and a 3rd party to purchase fahrenheit88, Pavilion Mall extension and an upcoming community mall in USJ Subang. These assets are estimated to have a combined value of about RM1.5-2bn. We believe the injection of assets will take 2-3 years, as only farenheit88 is still in the early stage of operation, and the other two malls will only be completed in three years’ time.

How to Value?

We benchmark PavREIT against KLCCP. Although KLCCP includes non-retail assets such as office towers and hotel apart from Suria KLCC, all these assets are of Grade A class. To reflect its prime status, we value PavREIT at a target yield of 5%, which is close to the average yield of 4.72% for KLCCP over the past 5 years (we gross up to exclude the impact of corporate tax – as REITs do not have corporate tax component). This translates to a fair value of RM1.14, based on our FY12 DPU estimate.

Source: RHB Research report

New Fund: AmAsia Pacific REITs

Despite the current high level of share market globally, especially in Asia, there is still hanging fruits waiting for investor to grab. One of it was REITs, which lags behind its share market peers in terms of valuation. With this, AmMutual launched their latest fund which focuses on REITs investment on 18th July 2011.

The fund aims to provide regular income and to a lesser extent capital appreciation by investing in REITs. To achieve the investment objective, 70% to 98% of the fund's NAV will be invested in REITs listed in Asia Pacific region, which includes but not limited to Australia, Hong Kong, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand. In addition to country diversification, the Fund will also diversify into different REITs sectors such as residential, commercial and industrial. The fund will hold between 2% to 30% of its NAV in liquid assets.

Strategy Employed...

The manager employs an active allocation strategy, which means the asset allocation decisions will be made after reviewing the macroeconomic trends and REITs market outlook of the respective countries in the Asia Pacifc region. Among the criteria are:

• track record
• investment portfolio
• financial status
• income distribution policy
• cost factors of REIT

Any distribution?

Subject to availability of income, distribution is paid at least once a year.

AmAsia Pacific REITs is suitable for investors who:

• wish to have investment exposure through a diversified portfolio of REITs in the Asia Pacific region. Portfolio diversification is obtained by investing in REITs of various sub-sectors (for example, residential, commercial, industrial within the REITs sector) listed in various countries; and
• seek regular income and, to a lesser extent capital appreciation over the Medium to Long Term.

Source: AmMutual and the Fund's prospectus

Click here to download the fund's prospectus

New IPO: UOA Development Berhad

Being one of the most established developer in Klang Valley, UOAD is going to be a darling property stocks for investors once listed. The strong "UOA" brand name as a developer of high end residential and commercial properties, makes it stands out from its competitors.

What's so interesting about UOAD?

Based on the IPO price of RM2.90 per share, the company is listing with a market capitalization of RM3.5bn, which eventually will place UOAD to be the 4th largest property company in Bursa Malaysia. The top 3 are UEMLand, SP Setia and IJMLand.

Don't forget about UOA REIT, which is the real estate investment trust of UOA Group in Malaysia. In other words, whatever properties that was construct by UOAD may inject into REIT one day. With UOAD being granted a "Right of First Refusal" to inject its completed commercial buildings into UOA REIT, it definitely provides UOAD the opportunity to redeploy its capital where the proceeds from asset injections will be re-utilized for future development projects. This would act like a "ready-exit" strategy for UOAD's asset. Not good enough?

Source: OSK Research

By managing its construction works in-house, this gave UOA a very competitive cost advantage, resulting in gross development margins of 50%, which is way above the industry average. They got their own team of architects, planning experts, M&E and civil engineers and quantity surveyor, hence, giving UOAD the edge to respond wisely and promptly to any unforeseen changes.

At last but not least, of course, is UOAD's flagship integrated property development project - Bangsar South. RM8bn, 60-acre located near Federal Highway and Mid Valley. According to HL Research, the land was acquired in 2005 for RM46psf, and its Horizon project has commanded pricing of RM600psf despite its leasehold status. In short, strategic location with huge value enhancement potential.

Fair Value?

OSK gave RM3.57
RHB gave RM3.45

HLIB gave RM2.57

Source: HLIB Research

5 rules of thumb on M-REIT investing

Unlike other countries, Malaysia REIT (M-REIT) has its own characteristic. Therefore, one has to master the following 5 basic rules before investing in M-REIT.

1. Management

Good asset management team will stand out from the rest, in case, there is a property bubble. There is cycle in real-estate industry, where required REIT managers to examine and act accordingly. For those experienced managers, any slowdown in real estate industry provided them the opportunities to enhance the trust portfolio.

2. Comparing dividend yield

The main purpose to invest in REIT is for its stable dividend yield. M-REIT is popular for its high dividend yield, which ranges from 7-9% currently. Of course, each REIT has its own figure due to different type of assets.

3. Choosing underlying assets

There is commercial, industrial, hotel, hospital, shopping mall and plantation REIT in Malaysia. Example, if pandemic flu occurs, hotel and shopping mall based REIT tend to under-perform, while hospital REIT will remain resilient.

4. Market capitalization

Size is the matter for Malaysia REIT, with most of them still commencing less than RM1bil market capitalization. Liquidity could pose a danger for investors to trade. Hopefully, with the emergence of SunReit and CMMT, M-REIT could become more attractive and liquid.

5. Compare with regional REITs

M-REIT tends to lag behind regional REITs, such as Singapore and Hong Kong. By tracking regional REITs, investors could predict the trend of M-REITs. This is because M-REITs are relatively young now.

Understanding REITs

What is a Real Estate Investment Trust (REIT)?

A REIT is a collective investment scheme that invests primarily in income-producing real estate assets such as shopping centers, offices, warehouses and hotels. To qualify as a REIT, a fund must have most of its assets and income tied to real estate investment and must distribute at least 90% of its total income to unit holders annually. In Malaysia, REITs are exempted from corporate tax if it distributes at least 90% of its total income.

Who is unit holders?

Every investor (like us) who invest into REITs are called unit holders, and entitled to receive income distributions (dividend).

Why invest in REITs?

REITs typically provide high income distribution (currently, 6-10% annually) plus the potential capital appreciation. Comparing 3-4% fixed deposit rate, REITs dividend yield is definitely better.

How to invest in REITs?

One can buy units in any REIT, which is listed on Bursa Malaysia, just like normal stocks trading.

Differences between REITs and Unit Trust?

Direct vs Indirect investment. Almost the same.

How often REITs makes an income distribution?

It depends on respective REITs, usually semi-annually or quarterly.

What is the Tax treatment of unit holders?

Withholding tax will be deducted for distributions made to the following categories:

Risks involved in Malaysia REIT...

- Low liquidity

- Unfavorable interest rate environment

- Deflation and Devaluation of assets

Finance Malaysia's view:

Generally, REIT is suitable for everyone (young, experienced, rich, resourceful, professional...) because it is an hassle-free exposure to real estate investment. Finance Malaysia hopes that more players will join the REIT bandwagon in Malaysia, such as IGB (Mid Valley City), IOI Corp, and even AEON's Jaya Jusco.

Coming next...

- More on M-REIT

- 5 rules of thumb on MREIT investing