While the battle with Covid-19 is evolving, the real estate investment trust in Malaysia (REIT) is still seen by many as an ideal alternative for many investors.
Alpha Reit executives, Detock Stuart LeBroy, say Reits represent the “asset cream” in Malaysia and are managed by the best asset managers in the country.
“This is the type of asset worth considering at this point, when there is a weakness in their pricing because when the market returns, they will lead the way to recovery,” he tells StarBizWeek.
“The performance of the REIT sector in Malaysia points to the fact that they are still the ultimate stock choice for defense. Their pricing in the market indicates the confidence expressed by investors who hold the knowledge that recovery is on the way and appreciate that they are still paying dividends.”
REITs enjoy tax-exempt status provided that at least 90% of their total revenue is distributed to investors or unit holders annually.
Against the backdrop of a rapidly increasing national immunization program, Lavroy states that local REIT performance could reach pre-epidemic levels in the fourth quarter of this year.
“The promising progress in our national immunization program indicates that the economy will lead to a strong recovery in the fourth quarter if everything is meant as we move towards herd immunity and with the opening of the economy.
LeBroy says the industrial sector will continue to outperform, amid growing demand in e-commerce, along with the launch of new industrial projects in the Klang Valley.
“It’s not so long ago that warehouses were disliked by investors, who continued to inject money into retail and office space.
“But things look much different now. Our cities and towns are struggling with too much commercial space and it seems the logistics sector can’t build warehouses fast enough.”
As online retail grows, Lavroy says the type of people required in storage has changed as well, and includes robotics engineers and data scientists.
“Warehouses have become huge centers of technical excellence to achieve efficiencies.
“I think there is a long way to go before Malaysia reaches its saturation point.”
Referring to the effect of the lock, Lavroy says that some of the REITs were more affected than others.
“Apart from the industry and education sector, the lockout, if continued indefinitely, will have a devastating effect on retail, office and hospitality REIT.
“We see an alarming rise in bankruptcies and unemployment, which will raise the price of consumer confidence and consumption.”
In the retail industry, LeBroy says the real problem will arise when tenants close out of business, adding that it will take time for the malls to reach the occupancy levels they enjoyed in the pre-epidemic period looking for new replacements. “We need to develop an alternative strategy to open up our economy soon,” he says.
AmInvestment Bank recently reported that the retail REIT will be primarily on a recovery trajectory that passes into the second half of 2021, when the economy will reopen in stages.
“According to the government’s national recovery plan, the country’s economy is expected to reopen by November and December, which we think is a good time to catch the holiday season at the end of the year when people are likely to spend.
“This is in line with our assumptions that local falls will recover by the end of the year or even rise to historic peaks, as people are more likely to travel locally while waiting for greater clarity about new regulations for cross-border international travel.”
Apart from this, AmInvestment said that the recovery from retail sales in the second half of 2021 will also be insightful from the demand of the heated consumer after closing.
This, the research house says, is similar to what happened last year after the first lockout.
“Based on previous cases where the locks have been lifted, the malls under our coverage have seen higher average sales per pilgrimage.
“We believe that the profits and risks associated with REIT today are much better compared to last year, thanks to the spread of vaccines locally and globally.”
DBS Group, says, says the impact on office closures from the lockout should be manageable, as office rent is tied to long-term contracts and rental losses are not as severe as the retail sector.
“As we saw in the previous lock, the office sector saw a minimal decline in rental income.
“Although we believe the office culture may change, it is likely that the office will remain the primary location where businesses will operate.”
According to statistics from the National Center for Property Information, DBS Group Research says occupancy remains above 75% in the Klang Valley, but added that it has fallen from a recent record of 79% with the addition of more space in the industry.
Furthermore, the research company Ipsos, DBS Group Research, was quoted as saying that Malaysians who worked from home were at the highest level of anxiety among the 28 countries surveyed.
“This can mean that office space and the work environment remain an essential element in the working class.
“While working from home offers flexibility, it also comes with difficulties in achieving work-life balance, as well as juggling family needs and ensuring appropriate equipment to get the job done.
“In the study, 63% found it difficult to achieve a work-life balance and 62% felt that their home was not equipped to perform the work.
“Many were forced to invest money on the internet and computers during the epidemic to ensure workflow.”
Meanwhile, LeBroy believes the local REIT sector could see a strong rebound at the end of 2021 and a boom in the first quarter of 2022, if vaccines can be accelerated to such an extent that the economy can reopen by December this year.
“The patterns are there to be seen around the world.
“Countries that have been rushing to vaccinate their populations are seeing strong growth already as consumers return to the market en masse.
“Employment will recover greatly with the increase in demand and we will be able to see the end of this plague once and for all until next year.”