Stock Name: QCAPITA
Company Name: QUILL CAPITA TRUST
Research House: MAYBANK
M-REITs
Maintain overweight: Malaysian real estate investment trusts (M-REITs) are due for a re-rating, especially commercial REITs which are underpriced vis-à-vis prices transacted in the secondary (physical) market. A re-rating will also be spurred by the impending listing of three mega REITs with combined assets of up to RM8 billion, which will add to the depth and liquidity of the sector. A 50-basis point hike in the overnight policy rate in 2010 will have minimal impact on gross dividend yields, as M-REITs still provide sustainable yields of 7%-8.7%.
M-REITs are trading at a generous implied capitalisation rate of 6%-10.8%, as most M-REITs trade at 5%-39% discount to their net asset values (NAVs). This offers investors arbitrage opportunities as shop offices and strata-titled offices around the Klang Valley were recently traded at gross rental yields of 5%-6% per annum in the secondary market. Recent primary market launches around the Kota Damansara area also reflect similar yield patterns.
The total asset size of M-REITs may double to RM18 billion by end-2010 with three impending listings - Sunway City REIT (up to RM4 billion in asset size), CapitaRetail Malaysia Trust (up to RM3 billion) and Malaysia's first cross-border REIT, Qatar REIT (up to RM1 billion). To enhance the appeal of M-REIT, we understand the regulator currently favours creation of new REITs with market capitalisation of at least RM500 million on listing.
Merger and acquisition (M&A) activities are picking up momentum as capital market conditions are friendlier now. RM1 billion worth of assets will be acquired by three M-REITs, namely UOA REIT (RM500 million), Al-Aqar REIT (RM303 million) and AmanahRaya REIT (RM227 million) this year-end and more are expected to follow suit. Axis REIT will be in the race to achieve its RM1 billion asset size target by end-2010. On the other hand, Atrium REIT, is a prime takeover candidate as it is undervalued and among the smallest M-REIT in asset size.
In 2009, M-REITs provided attractive gross dividend yields of 7.1% to 8.8% compared to 12-month cash deposit rates (2.75%), EPF dividend yield (5.65%), KLCI dividend yield (2.9%) and 10-year government bond yield (4.2%). At current valuations, we believe the market has priced in zero-asset growth for 2010-2011.
Our top picks are AmanahRaya REIT with FY10 gross dividend yield of 8.4%, Axis REIT (7.9%) and Quill Capita Trust (7.6%). We also like UOA REIT and Tower REIT for their long-term value proposition and under-appreciated office values. - Maybank IB, March 22
This article appeared in The Edge Financial Daily, March 23, 2010.
Company Name: QUILL CAPITA TRUST
Research House: MAYBANK
M-REITs
Maintain overweight: Malaysian real estate investment trusts (M-REITs) are due for a re-rating, especially commercial REITs which are underpriced vis-à-vis prices transacted in the secondary (physical) market. A re-rating will also be spurred by the impending listing of three mega REITs with combined assets of up to RM8 billion, which will add to the depth and liquidity of the sector. A 50-basis point hike in the overnight policy rate in 2010 will have minimal impact on gross dividend yields, as M-REITs still provide sustainable yields of 7%-8.7%.
M-REITs are trading at a generous implied capitalisation rate of 6%-10.8%, as most M-REITs trade at 5%-39% discount to their net asset values (NAVs). This offers investors arbitrage opportunities as shop offices and strata-titled offices around the Klang Valley were recently traded at gross rental yields of 5%-6% per annum in the secondary market. Recent primary market launches around the Kota Damansara area also reflect similar yield patterns.
The total asset size of M-REITs may double to RM18 billion by end-2010 with three impending listings - Sunway City REIT (up to RM4 billion in asset size), CapitaRetail Malaysia Trust (up to RM3 billion) and Malaysia's first cross-border REIT, Qatar REIT (up to RM1 billion). To enhance the appeal of M-REIT, we understand the regulator currently favours creation of new REITs with market capitalisation of at least RM500 million on listing.
Merger and acquisition (M&A) activities are picking up momentum as capital market conditions are friendlier now. RM1 billion worth of assets will be acquired by three M-REITs, namely UOA REIT (RM500 million), Al-Aqar REIT (RM303 million) and AmanahRaya REIT (RM227 million) this year-end and more are expected to follow suit. Axis REIT will be in the race to achieve its RM1 billion asset size target by end-2010. On the other hand, Atrium REIT, is a prime takeover candidate as it is undervalued and among the smallest M-REIT in asset size.
In 2009, M-REITs provided attractive gross dividend yields of 7.1% to 8.8% compared to 12-month cash deposit rates (2.75%), EPF dividend yield (5.65%), KLCI dividend yield (2.9%) and 10-year government bond yield (4.2%). At current valuations, we believe the market has priced in zero-asset growth for 2010-2011.
Our top picks are AmanahRaya REIT with FY10 gross dividend yield of 8.4%, Axis REIT (7.9%) and Quill Capita Trust (7.6%). We also like UOA REIT and Tower REIT for their long-term value proposition and under-appreciated office values. - Maybank IB, March 22
This article appeared in The Edge Financial Daily, March 23, 2010.
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