M-REITs 2013 outlook as the curtain closes for 2012

My subscribers are well aware of my affinity with investing in REIT, M-REITs to be specific. And I’ve helped some of my subscribers/readers into understanding REIT investing via REITMethod.com, an online educational course I co-founded with KCLau. Some of these subscribers (it may be you I am talking about) have not only turned into my clients for this course, but also as friends as we exchanged investing ideas. Over the past weekend, I was away for vacation, and when I got back, I got 2 emails in my inbox, containing RHB Research Institute and Maybank IB Research analyst reports on REIT sector outlook as we step into 2013. I have to thank TY and Daniel Foo of SilverInMalaysia for this – the good thing about delivering real value to clients with integrity is that the client relationship also turns into friendship as well. I keep in touch with some of them personally, and even met some in person. Daniel was thinking it is good to share with REIT Method members, but I thought, what the hell, let’s do a sharing here instead for greater impact.

As expected, digesting the jargons in analyst report is not easy task without a background in finance or investment. Case in point – if analyst rate the REIT sector as “Neutral”, what are they really saying? Invest now or invest later? As you can see, statements like this is pretty ambiguous. It’s easy to stuff in jargons, opinions and ratings when your money is not in the line – but these are part and parcel of any investment analysts’ job. My passion, and value to you, however,  is to strip it down to what one should know about making return on his/her investment, decode and decipher these statements and present them in layman form.

Salient points from Maybank IB Research

Upgrade to Overweight – Investors should regain interest in M-REIT in Q1 2013 as defensive investment as stock market may fluctuate pending 13th general election. Profit taking occurred in mid Nov 2012. Overall positive on M-REIT for solid fundamentals and yields. Top pick is SunREIT, PavREIT and CMMT.

Layman talk: Yes, the underlying fundamentals & financial condition of these REITs are good. In short term, if you want to sleep more peaceful at night, having REITs in your portfolio helps because it guarantees your dividend no matter how the market fluctuate. However, having good fundamentals is good news for anyone already invested in these REITs. BUT! It is different from saying the REIT is a good buy now. If you are not already holding these REITs, then don’t rush to buy SunREIT/PavREIT/CMMT now because by now, its price has gone up quite a bit, meaning you aren’t really getting like, 6 percent of return in dividend even from your investment if you were to invest now. Hold your horses and see how the market direction is for the upcoming election; if price dips, then I’d be very tempted.

I am one of the people who did profit taking (read: sold off my positions) in PavREIT and CMMT which I had been holding since end of 2011. So, am I stupid or what – you may ask? Well, I’ve getting like 25-30 percent capital gain alone in PavREIT and CMMT. And I spotted other undervalued REITs with good yields (more on the below), so I sold PavREIT and CMMT to buy into them.

Yes, time will only tell if it’s a dumb move or not (if PavREIT or CMMT prices were to go up even more). But we can’t have everything, can we? As long as it reached (in this case it exceeded) my expected return, then I feel ok to liquidate my positions. After all, reading The Value Investors: Lessons from the World’s Top Fund Managers made me adopt this concept of prioritizing downside risk (read: NOT TO lose any money) above anything else, like generating huge returns.

mreit-2012-dec-yield-table

Outperformed KLCI – 2012 is the best year for M-REIT, with news of KLCCP stapled REIT’s coming soon and listing of IGB REIT.

Layman talk:This doesn’t really concern me, except it gave me 10 seconds of warm fuzzy feeling that I made some good decisions in investing in some REIT counters since 2011. IGB REIT price is overvalued on day one since its listing – it still is now, so I am sitting aside and monitoring it closely.

Read my previous post on IGB REIT IPO: Application Failed, Now what?

Think of buying into M-REITs now after reading this? You can, but be very careful of the yield factor and valuation compared to its NAV (stuff that we cover in the REITMethod course)

Rising investability and attractiveness – in 2013, with KLCCP stapled REIT coming to play, potentially attracting international investors, making the whole M-REIT sector more vibrant and liquid.

Layman talk:REIT counters may fluctuate more with increased liquidity – so it’s a double-edged sword, beyond our discussion today. Again, it doesn’t concern me much now because it is yet to see if this would happen.

Read my previous post on KLCCP Stapled REIT

Values emerge: M-REIT average yield at 6 percent, higher than MGS yield of 3.5 percent and S-REIT yield of 5.4 percent. Recommend to buy SunREIT, PavREIT, CMMT and IGBREIT.

Layman talk: The average M-REIT sector yield, or any sector for that matter, does not concern you and me unless there is a M-REIT exchange traded funds (ETF) we can invest in.

And all these retail REITs are still quite overvalued, with relatively low yield now at less than 5 percent net (compared to others like AmFIRST or Quill Capita) in spite of the recent profit taking. If you ask me, personally I’d stay out from buying into them now. If you are already holding it since a year ago, you can profit-take Or you could hold onto them for the dividends.

Go retail, avoid office due to oversupply.

Layman talk: This is nothing new. Like mentioned previously, yes, retail REITs are backed by good quality assets, defensive with good fundamentals but one shouldn’t rush in now. Again, this is just what I would do, and not as an advice to buy or sell.

Salient points from RHB Invest (not already covered by Maybank IB Research)

Maintain Neutral, with potential REIT sector re-rating due to KLCCP REIT coming into picture. Organic growth remain stable. Although upside remain limited, the downside risk is not significant either.

Layman talk: Analyst means “I can’t decide either – to invest now or not. Got good, got bad”. Haha, just kidding. But ok, not entirely kidding but you get the picture.

Organic growth means growth in rental from REIT’s current assets, or injection of assets from the REIT’s sponsor. Like SunREIT inject Sunway Medical Center into it.

A snapshot of organic growth for M-REIT’s in 2013.

rhb-mreit-pipeline assets

Re-rating here refer to something positive. If sentiment is positive, meaning stock price will go up. So capital gain is imminent.

Turning cautious on Al-Hadharah’s earnings prospects, due to downward trend of CPO prices.

Layman talk: Assets under this REIT is oil palm plantations, and directly correlated to prices of oil palm in the market. Unless you are familiar with the oil palm industry, it is very hard to determine the fundamentals of this REIT as it is more dynamic than others.

Inorganic growth – acquisitions with healthy capital structure

Layman talk: With reasonable debts, most REITs (with exception of Al-Aqar and Hektar) are well positioned to buy more assets under their belt. That means more rental income brought in, and more dividends for us, the investors.

This Post Has 8 Comments

  1. What is your take on atrium reit, an industrial reit? Will it suffer the same fate as office reits?

    1. I think industrial reit is more resilient, however, I am not privy of any recent info on atrium – we’ll see its annual report soon.

  2. Where there is uncertainty , there is opportunity 😀

    1. Absolutely, it’s about risk-return 🙂

  3. Thanks for the P/NAV table as above.

    1. You are most welcome Felicia!

  4. CF, Merry Christmas. Thanks for your sharing. My opinion put tis articlel link at REITmethod.

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