News: REITS In Demand Amidst Coronavirus Outbreak

Feb 21, 2020

Real estate investment trusts (REITs) emerged as a very attractive asset class, following concerns by investors on the adverse economic effects arising from the COVID-19 outbreak.

“REITs have appeared increasingly on investors’ radar, especially after the 25-basis-point cut in the Overnight Policy Rate (OPR) by Bank Negara Malaysia (BNM) a few weeks ago. With expectations of further rate cuts in 2020, the outlook seems rather sanguine for REITs,” Leong Hoe Kit, CIO and CEO of Pheim Asset Management Sdn Bhd, told The Malaysian Reserve.

This is contrary to earlier times when the US Federal Reserve signalled a possible interest rate hike, which caused a decline in the prices of local listed REITs, particularly during the early-2018, as investors shunned holding REITs, he said.

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At present, REITs yield around 6.5% per annum, which is quite respectable considering that the Employees Provident Fund’s (EPF) dividend payout for 2018 stood at only 6.15% for the conventional savings scheme and 5.9% for the Shariah-compliant savings scheme.

The EPF is yet to announce the dividend payout for last year, but it is expected to be lower than the 2018 rate.

Permodalan Nasional Bhd, on the other hand, revealed an income distribution of only 5.5% for Amanah Saham Bumiputera in 2019.

“Even if we factor in a discount of 20% from the latest yield numbers for REITs, it would still be much more attractive than fixed deposit yields, which would come down even more if there are further rate cuts by BNM,” said Leong.

REITS are companies that own and operate real estates like industrial, commercial or hospitality properties to earn income.

In Bursa Malaysia, there are about 18 listed REITs at present and many more abroad.

Aside from being popular with institutional investors because of its dividend yields, these low beta investment alternatives help lower the risk profile of one’s investment portfolio.

“In line with the often-repeated advice to never put all your eggs in one basket, investors should also include REITs in their investment portfolio to effectively diversify their holdings.”

And given the calls by retailers for 30% to 50% rebates for six months to help mitigate the COVID-19 outbreak’s economic effects to their businesses, Leong advised investors to be discerning in choosing the REITs to invest in.

Leong suggests Axis-REIT Managers Bhd because it is mainly focused on industrial and warehousing assets, unlike retail mall-based REITs which may be affected by the tenants’ demand for rebates and weaker consumption patterns.

 

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