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Is 20% Return A Thing Of The Past For Malaysia’s Top Retail REIT? (Part 1)
By: Brian Brinker
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By: Ong Qiuying
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The Malaysian Real Estate Investment Trust (M-REIT) market grew substantially in 2013 with the listing of KLCC REIT in May last year, raising the M-REIT market capitalisation to RM31.8 billion, a growth of 29.8 percent for the year.

The M-REIT counters also climbed to an all-time high in 1H13 before fears of rising interest rates hit the markets. Will M-REITs lose their shine from now on? Let’s examine the retail segment of the M-REIT market.

Most economists expect a solid gross domestic product (GDP) growth of about 5 percent in Malaysia for 2014.

The government’s continuous support of the tourism industry is also expected to contribute to the hospitality and retail sectors in the country.

Nonetheless, several conditions could stifle growth in the sector. For example, a new goods and services tax in Malaysia will raise the cost of consumption considerably, which will likely result in people tightening their spending.

More inflationary pressures are also expected as electricity tariffs with the news of increase in assessment rates as well as fuel prices kick off this year. This could pinch retailers and also restrain real estate as people will have less money to invest.

Furthermore, the tapering of US’ quantitative easing programme would add pressure for the yields of Malaysian Government Securities to rise, narrowing the yield spreads with M-REITs and reducing the appeal of the REIT counters.

Many analysts are expecting Malaysia’s real estate market to remain stable throughout 2014 and to record moderate growth. While there are some fears of overbuilding, an ever growing population and continued economic expansion should keep prices buoyant.

Regardless, the Retail Group Malaysia projects retail sales to continue to grow, albeit at a slower pace than that of last year.

First quarter retail results are not in yet but the sector is currently projected to grow by 4.8 percent, compared with 7.5 percent during the same period last year.

For the whole year, retail sales are expected to grow by about 6 percent.

Thus far, Pavilion Real Estate Investment Trust (REIT) has proven to be one of the top performers in M-REIT market. Since its listing in 2011, the group has achieved an average total return over three years of 20 percent.

Company Profile
Pavilion REIT is one of Malaysia’s largest retail concentrated REIT. The trust invests heavily in retail and residential real estate in Malaysia as well as within the Asia Pacific region.

The company’s principle investments are the Pavilion Mall, a large upscale shopping center located in the heart of Kuala Lumpur, and the nearby Pavilion Tower office building.

Both of these buildings are highly regarded for their luxurious amenities.

As at 31 December 2013, the trust’s asset under management was RM4.1 billion, up from RM4 billion in FY12.

Click to see what the brokers say about Pavilion REIT.

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.


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