REITs to Benefit from Higher Gearing
The news last week for REIT watchers was that the Securities Commission (SC) issued a guidance note to allow REITs to borrow up to 50% of their total asset value. Previously, they were only able to borrow up to 35%.
The Edge, has predicted that this will have trickle down effect to investors in the form of higher yields (see their report on July 17, 2006). The also noted that the government implemented this after receiving feedback from industry players. The also recorded some optimism that this news might help boost the price of the REITs currently. This however, may only happen if the cost of debt is remains lower than the cost of equity.
We have always lamented on the few number of REITs available in the market currently since the launch of this instrument so long ago, resulting in their effectiveness to make an impact in the Malaysian investing environment.
Currently, there are only 4 available REITs – Axis, Starhill, UOA and Tower. Of these, only Axis is trading reasonably above its listing price. In the case of Starhill, despite all the earnest marketing and promotions by YTL, it still remains sluggish. Axis, too have been aggressive, adding 4 more properties to their assets in the last 11 months (see our report here) and growing their listing from RM290million to RM400million. Actually all the four companies are constantly looking for more property injection (including Ritz-Carlton Residences for Starhill), and the higher gearing due to borrowings should be able to help quite a bit.
Interestingly enough, at 50%, the gearing level brings Malaysia in line to its regional peers. Singapore, previously also at 35%, increased it to 60% recently (with a credit rating).
So will there be better days for our paltry REITs? Let’s wait and see.
For more articles on REITs in Property Malaysia:
Tower REIT Opens At RM1.06
News on Tower REITs and Axis-REIT
Malaysia Real Estate Industry Hits RM56 billion
Tower REIT Looking For More Office Buildings
Starhill REIT Makes Good Debut
UOA Offers REITs Today
Axis REIT to Buy Two More PJ Properties
YTL launches Starhill REIT
Budget Boost for Malaysian REITs
About Malaysian REITs
