An observation of REITs in Malaysia

While I was stuck in the jam on the way back home just now, I saw that the Mines Shopping Centre now belongs to Capital Land. Which led my thoughts too REITs in Malaysia. For the uninformed, REITs stands for Real Estate Investment Trust. It’s something like unit trust, except in this case the management companies invest in properties instead of other more liquid investments. And unlike Malaysian unit trusts, this is floated on the Stock exchange so a person can buy or sell in the capital market.

Anyways, back to my thought. I’m wondering if REITs is being used by huge property groups to sell off their not so profitable buildings and use the money to invest somewhere else. For example, lets say a huge property firm will try to apply for a REITs licence. Once they have been given the green light, They wills etup the REIT management company, then buy all the least profitable properties in their main companies holding. Then the public will buy into these REITs because in their mind, “Hey, this is a huge property company doing REITs. Since they are so reputable, I don’t see why I should not invest in their REITs.”

Hence, these land companies can wash their clean off this less or sometimes, even unprofitable properties and pass the burden to investors. These are usually commercial properties in prime areas but yet have very low tenancy rate. Their fund mgmt company will buy the building and say that there is a huge potential in that area for rental growth. But of course, that statement is very subjective.

But bear in mind, I’m not saying that all REITs are doing this. They may not even be doing it at all. All I’m saying is; be careful if you do decide to invest in REITs. Make sure you know what their underlying properties are. Don’t simply just buy because the company is reputable. A lot of companies now are misusing their reputation anyway.

In my opinion, the REIT worth buying into would be Sunway REITs (if they decide to list here-lah). According to some quarters, they will most probably inject all their profitable properties like Sunway Pyramid, Lagoon, the medical centre, the hotel as well. That, in my opinion sounds like a damn fine portfolio for any REIT. And no, Sunway group is not paying me a single cent to say this. Though I wish I would get paid for my investment tips like Research companies do. After all they are no different from the weather man who predicts the weather everyday. Right or wrong also cannot blame them. Hahahah!!!

Boodyboy, out!!!