REITs offer returns in good and bad times

By THE EDGE

KUALA LUMPUR: Real estate investment trusts (REITs) remain as the ideal investment in an uncertain economic environment as REITS has low correlation with the equity markets, said Quill Capita Management Sdn Bhd’s chief executive officer Chan Say Yeong yesterday.

“Although REITs value may drop during a financial crisis, you may still get your returns,” Chan said at the 12th Malaysian Capital Market Summit 2007 here yesterday.

Citing the 1997 financial crisis as an example, Chan said most companies were unable to issue dividends for a few years; however, REITs guaranteed returns on investments to investors.

REITs are trust funds that hold or invest in rental properties and are required to distribute most of its profit as dividend to its holders.

Furthermore, Chan said Malaysian REITs (M-REIT) offered attractive yield spread.

He added that M-REIT had a 2.47% yield as end of October, which was higher than Singapore’s REITs (S-REITs) at 1.80% and Japan at 1.91%.

Meanwhile, Axis REIT Managers Bhd chief operating officer George Stewart LaBrooy said REITs could boost and help reduce capital cost.

“REITs create conditions for building an integrated property business and attracting foreign capital,” he said.

LaBrooy added the trust fund could help develop the broader economy and bring in new players, citing S-REITs as an example in attracting established property developers like CapitaLand Ltd and Keppel Land Ltd.

However, LaBrooy said the local REITs industry needed consistent improvement in the regulatory environment and the removal of withholding tax.

He added that REIT dividends should be treated in the same manner as bonds.

“We need to re look at the deregulation of the equity structure of the REIT managers to allow foreign and local participation without restriction,” LaBrooy said.

Going forward, he said: “In the next phase, we will see the introduction of a regulation that will allow REITs to go into development projects that would propel further growth, driven by the higher growth expected from the REITs earnings.”

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