Malaysia would not be my favourite hunting ground for REITs.
With only 19 REITs listed on Bursa Malaysia, there are easily only a handful of good REITs that are worthy of investor’s attention. My pet peeve with M-REITs lie at their relatively passive approach to accretive acquisitions.
Most, if not all of the M-REITs are very passive in acquisitions. Those who overdo it, risk diluting their DPU post-acquisition.
That said, I am not implying that you can’t bet on certain blue chip M-REITs for steady income. It is still possible to replicate the dividend income investment methodology, albeit not at a better pace versus S-REIT investors due to the difference in class.
Here are 4 of the Malaysia blue chip REITs that I think are the cream of the crop.
1. IGB Real Estate Investment Trust (KLSE: IGBREIT)
IGBREIT is the owner of two Kuala Lumpur’s shopping malls that are well loved by Malaysians – The MidValley Megamall (MVM) and The Gardens Mall (TGM). While tourists might flock to the Pavillion Bukit Bintang, a true OG Kuala Lumpurian will swear by MVM and TGM.
IGBREIT counts as the first REIT that I analysed and acknowledged as well run, growing stabily. My nitpick, as I learn more about REIT investing, is the REIT is too passive in acquisitions for my liking.
But on the flip side, investors who value stability would quip, “Why reinvent something that isn’t broken?” Since its IPO more than a decare ago, IGBREIT has maintained just 2 investment properties, yet still manages to pull in increasing gross revenue and net property income.
Their financing is also structured via fixed interest rate middle term notes, rather than floating interest rates offered by banks and financial institutions. Thus, IGBREIT isn’t really much bothered by interest rates regime.
Dividends per share have been stable and reliable. Apart from the blips in FY 2020 and 2021 due to disruption from COVID, recovery was swift and business is as usual from FY 2022 onward.
2. KIP Real Estate Investment Trust (KLSE: KIPREIT)
If I were to be tasked with describing KIPREIT to Singaporeans, i’d say it’s a hybrid of Frasers Centrepoint Trust (SGX: J6YU) and Frasers Logistics and Industrial Trust (SGX: BUOU), but fully focuses on Malaysian properties.
KIPREIT burst onto scene when it got listed on 6th of February, 2017. Back then, the value proposition it seeks to offer was the leasing of investment properties in suburban parts of Malaysia. Suburban in Malaysia’s context, is another level compared to Singapore, as the tenants are mostly local businesses and not international chains.
I had my doubts when the REIT was newly minted – how do you grow rental revenue at an accelerated pace where spending power is not the best? KIPREIT seems to have proved me wrong. It has been growing its overall rental revenue and net property income over the years with no break in momentum.
The REIT has also been shrewd in acquiring under the radar properties that complement its portfolio. It might have a sponsor for ROFR properties, but the REIT has also been proactive in growing inorganically, something lacking in a lot of REITs with sponsors.
Though the level and quality of tenants might be a risk to ponder on, the REIT has maintained a stable track record in terms of DPU, consistently dishing out distributions for the past few years since it got listed.
3. KLCCP Stapled Group (KLSE: KLCC)
Even though it is no longer KL’s & Malaysia’s tallest tower after the opening of 118 Tower and Tun Razak Exchange, the Petronas Twin Towers is still an iconic landmark in KL’s skyline.
And most would never have thought that it is possible to own a piece of one of the world’s tallest towers, which is under the ownership of a listed REIT on Malaysia’s stock exchange. KLCCP Group, or more often known as KLCC REIT, is the property arm of Malaysia’s national oil company – Petronas. Even though it is mainly involved in the end-to-end oil business, Petronas has also diversified its business into property, and has been entrusted with some major township planning by the Malaysian government.
KLCC REIT is the REIT that synergises with KLCC’s business model, which allows for capital recycling while retaining control over some of Malaysia’s key properties and buildings.
KLCC might not be the most prolific in organic acquisitions, but hats off to the REIT for able to grow its distributions per unit steadily.
The thesis is straightforward – having Malaysia’s national petroleum company, and one of the world’s largest petroleum companies as an anchor tenant, the risk in terms of tenant quality has been minimised to the lowest possible level.
4. Pavilion Real Estate Investment Trust (KLSE: PAVREIT)
Pavillion KL has an uncanny vibe very similar to ION Orchard.
While Singapore boasts plenty of skyscrapers serving as the regional offices of MNCs, when it comes to the pinnacle of fashion and luxury, there is only one flagship along the Orchard Road’s shopping district.
The same applies to Bukit Bintang, Malaysia’s shopping heartbeat for tourists. While there are a few malls along the streets of Bukit Bintang, none shines or catches the eye more than Pavilion KL. Owned by PAVREIT, Pavilion has always been one of KL’s footfall magnet, catering to both the backpackers and also the affluent and wealthy tourists and locals alike.
More than half of PAVREIT’s net property income is derived from Pavilion KL. The prime location and high-quality tenants seeking presence in Bukit Bintang ensure that Pavilion is maintains high occupancy and also strong tenant sales.
The REIT’s latest acquisitions happened in the month of December 2024, with it planning to acquire Banyan Tree KL and Pavilion Hotel KL for a combined value of close to RM 500 million.
The acquisition will diversify and lower down Pavilion KL’s concentration on PAVREIT’s performances, while also taking advantage of the hospitality segment and growth of tourism in Kuala Lumpur.
If all goes well, we might see a small spurt in DPU accretion post acquisitions.
My verdict
The retail scene and robustness of M-REITs is there, although I wouldn’t say it’s world class. For investors not looking to diversified out of Malaysia, these are some of the M-REITs that are stable and reliable for income investors.
That said, I still prefer geographical exposure and diversification. After knowing and observing the market long enough, it is tough to expand beyond Malaysia, but it is not impossible. There are also M-REITs that have diversified their presence outside the borders of Malaysia.
Nonetheless, other risks come to play, like foreign exchange and interest rate risks. Still, I believe if all is well managed, diversification can be achieved for growth of NAV per unit and DPU.
The flip side, many would warrant these risks as unnecessary. And judging from that angle, perhaps there really are less concerns for M-REIT investors versus S-REIT investors?
Food for thought!
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