Want something that provides consistent income distribution and capital appreciation in the stock market? We are talking about value investing over here.
LCF @ CF Lieu, co-founder of REITMethod.com with KCLau, the first REIT investment online educational course, recently interviewed Mr Stewart Labrooy, CEO of Axis REIT. This is the full interview transcript on the prospects of this often overlooked investment vehicle. We think that it definitely has a place in your investment portfolio.
  1. How is MRMA’s role instrumental in bringing M-REIT sector to its current stage today?

The MRMA was established in May 2010 to achieve the following

  • To act as a collective representation of the Malaysian real estate investment sector.
  • To establish an environment conducive for investors to invest in high quality real estate in Malaysia.
  • To establish a framework for the development of the Real Estate Investment Trust (“REIT”)   industry, to coordinate investment activities and promote networking possibilities within the region.
  • Improve transparency and provide quality research and information to local, regional and      international investors.
  • Develop common workable standards that meet with international best practices especially in the areas of financial reporting, disclosure and corporate governance.
  • Represent members’ interests through lobbying the Malaysian Government and regulators for functional regulations, viable structures and tax harmonization in order to make Malaysian REIT’s competitive within the region and internationally.
  • Encourage and promote the quoted property funds industry.
  • Provide insightful market research and databases that can be practically utilized by members.
  • Establish working committees that can formulate policies and coordinate the various activities.
  • Introduce training and discussion forums to analyze applicable laws and legislation, trends and current issues, improve professionalism and knowledge within the real estate investment industry

Getting all the members together as an Association has been an important development for the REIT Industry in Malaysia as it enables us to work together to promote  the development of the industry, with the best practices in the industry as our benchmarks and keep abreast of the latest developments in the REIT industry. This has had the effect of encouraging other companies to explore the listing of their assets as REITs through the success of the Malaysian REITs. We have 15 members to date.

Malaysia is one of the two countries that have a REIT Managers Association.

  1. What is the core management strategy of a great REIT manager (let’s take Axis-REIT as an example) who is able to consistently deliver increasing return to unitholders even though during economic downturn?

The core of our strategy is

  • Targeting Growth in our asset class both organically and through acquisitions.
  • A comprehensive Capital Management program run by our financial team.
  • Enhancement of our existing assets to drive value and income.
  • Trading of assets to reward our Unit holders.
  • Comprehensive Risk Management strategies
  • Embracing the Best Practices in accounting & financial reporting, property valuation, portfolio performance reporting investor relations and corporate governance.
  • Setting Standards as a World Class Asset Management Company
  • Leveraging on Technology & Sustainability
  • Leading the Malaysian REIT Managers Association to drive Regulatory and Tax Reforms

REITs are not just a collection of assets where rent is collected but rather it is a business that focuses on creating the highest returns for its Unitholders.

We don’t refer to our tenants as “customers” and have a comprehensive program of tenant care and building maintenance to ensure that rents are justified and we can organically grow our rental returns to the Fund.

  1. What is M-REIT advantage compared to its South East Asia counterpart, say, S-REIT?

All the REIT markets are different. There are 196 REITs listed in Asia Pacific with a market capitalization of USD 215 Billion.

CountryNumber of REITs Market Cap. (US$ bn)
S. KOREA80.4
Total196 215.1


For example the S-REIT market is a very liquid market that has a large foreign and retail participation.  The M REIT is largely held by local institutions and has low foreign and retail participation. It is also a much smaller and less liquid market. However with the listing of the larger REITs Sunway, CMMT, Pavilion and IGB we have risen to an USD 8 billion market cap which places us 5th in the region in size

During the GFC M REITs were one of the most resilient asset classes in the region as we had the benefit of a sound banking system that enabled all REITs to ride the storm successfully without resorting to dilutive capital raising exercises which destroyed shareholder value over the longer term.

There are some areas we are not as competitive – for example we don’t enjoy a zero withholding tax for individual unitholders like Singapore does. This is a feature we would like to see happen as it would encourage pensioners to place their funds in REITs for steady returns.

  1. What is M-REIT advantage compared to direct commercial property investment? (especially with Budget 2013 increasing RPGT, but the 10% withholding tax for REIT since 2008 has been extended to Dec 2016 since Budget 2012)

Purchasing REIT stock is the same as owning direct property but it not an investment for speculators but rather long term ownership of assets. The big difference is that for the long term investor we take out the business risks in investing in direct property and provide them with a portfolio that carries a much lower risks profile. For example at Axis-REIT we have a diverse portfolio of 32 properties so it lowers the risk if there is tenant leaving.

Unitholders also enjoy all the advantages of direct property ownership in that when assets are disposed of by the REIT, the capital gains are returned to them tax free. However when we own properties to rent individually that income is subjected to a 25% corporate tax (REITs only pay 10%).

  1. What is the advantage of REIT stocks compared to company stocks?

REITs are a different asset class with a high certainty of dividend payouts (Minimum 90% of net profit before tax) and this is done every quarter or half yearly.

There are also much higher requirements in corporate governance when compared to listed companies who can be controlled by owning a 32% share of the stock. In REITs the manager is appointed and all assets are held in trust by the Trustee. The manager is normally the promoter of the REIT at listing but they can be removed if they do not perform and they cannot vote in any Related Party Transaction. It’s a highly transparent industry.

  1. What is the current sentiment of local and foreign institutional investors in M-REIT? As in, are they buying/holding/selling?

In response to the financial crisis of 2008-2009, investors have questioned some of the underlying assumptions of modern portfolio theory.  In particular, investors have observed negative investment returns of greater magnitude and higher frequency than those implied by the normal statistical distribution of investment returns on which most asset allocation models typically rely.

That’s basically the equivalent of having a “hundred year storm” every 10 years.

That real estate should be “a steady part of the diet. Optimized portfolios may seem counterintuitive given the volatility of real estate during the financial crisis. However, the high and steady dividends distributed by REITs year-in and year-out play a large role in the total return of REITs.  Returning to the Lost Decade, when the S&P 500 Index posted its compound annual total return of negative 0.95 percent, it is noteworthy that the FTSE NAREIT All Equity REITs Index delivered a compound annual total return of positive 10.63 percent.

Dividends are important! Research reveals that the relatively high and stable dividends of REITs have provided investors with appreciably higher total returns when compared with other equities.  Because REITs are required to distribute annually to their shareholders at least 90 percent of their taxable income in the form of dividends, approximately 56 % of the total return from U.S. REITs over the period December 1989 – December 2010 came from dividends, compared with only 23 percent of the total return from companies in the S&P 500 Index.

With the current volatility in the equity markets I believe M REITs have found a sweet spot with the investors (both foreign and local). What we see here is an unprecedented listing of the “Crown Jewels” of properties – Pavilion, Sunway Pyramid, MegaMall and perhaps the KLCC as well. This has enabled all investors to participate in the ownership of the best properties in Malaysia. The current trend is to buy and hold on to M REIT stock and in this flight safety we have witnessed an unprecedented compression in yields across the board. MREITs now trade at premiums of 150-300 basis points above the 10 year MGS rate as compared to Singapore where the premiums are more like 400-600 basis points.

The REIT managers in Malaysia have displayed a strong sense of commitment to their shareholders in providing growing dividends and increasing values to their shareholders.

Such transparent behavior will set a good example to other REIT markets.

  1. On Axis REIT – what is the rationale for REIT manager to opt for private placements over public placement (rights issue)?

The private placement route is much quicker way of raising capital and the discounts given tend to be small (3-5%) as compared to rights issues where the discounts can be as high as 20% and is highly dilutive.

In addition it is our experience that a rights issue can take up to 6-12 months and the pricing is subject to market forces in that period.  A placement can be completed in 2-3 months with tight pricing.

  1. Going forward to 2013, what is the outlook (briefly) of the following REIT assets type:

a) Retail – Still showing good growth prospects in rents but hard to grow the portfolio due to limited stock in the market.

b) Office- with 25 million sq. ft. coming on stream in the next two years and absorption of three million sq. ft. a year an oversupply is looming. Rents could soften.

c) Hotels/hospitality- limited quality buy opportunities but room rents are increasing.

d) Industrial- steady with ample buy opportunities. Rents are increasing due to limited new supply coming onto the market. Johor’s industrial sector is booming.

e) Plantation (Al-Hadharah Boustead) – a lot will depend on the pricing of palm oil internationally. Its growth is linked to the climate conditions and pricing- a very difficult call short term. However it does have the feature of being a large land bank with a steady dividend return and with commodities becoming a favoured asset class it does have a long term upside.


Stewart LaBrooy

Chief Executive Officer

A prominent speaker on Conventional and Islamic REITs in the region, Stewart LaBrooy is the CEO of the first REIT to be listed on the Mainboard of Bursa Malaysia in 2005; Axis REIT Managers Berhad. Stewart holds a Bachelor of Engineering (Hons) degree and a Post Graduate Diploma in Business Studies from the University of Sheffield. He is a Board member of the Asia Pacific Real Estate Association (“APREA”) and the Chairman of the Malaysian REIT Managers Association (“MRMA”).

CF Lieu
CF Lieu

CF Lieu (CFP) is an independent financial adviser and maintains an active vlog at https://howtofinancemoney.com/

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