• REIT would now be able to acquire property under construction or uncompleted real estate. However, a REIT is only allowed to acquire property under construction or uncompleted real estates up to 10% of their total asset value.
• REITs still cannot acquire non-income generating real estates such as vacant land.
• More freedom for REIT managers to invest in foreign real estate
• Allowing a portion of a REIT’s portfolio to consist of properties it does not wholly own or have majority ownership.
• REIT managers had to appoint a designated person responsible for compliance. This is to ensure that securities laws, land laws and guidelines and rules are complied with at all times.
• On the issue of units for cash (other than rights issue), the number of units to be issued must not exceed 20% of the approved fund size while the placement to one single placee must not exceed 10% of the approved fund size.
• Foreigners can now own up to 70% of the real estate investment trusts (REIT) management companies, up from 49% since 2005.

According to experts, benefits/effects accruing from the above are:

• REITS are able to acquire partially completed building REIT could now participate in the construction too. A REIT will then be able to buy assets at a lower price and if there is a contracted tenant, as a result the REIT can obtain higher yield.
• There are some clear move that that SC’s is moving toward enhancing corporate governance among REITs, including the setting up of internal auditors and the harmonising of the rules for REITs was good.
• The SC’s conditions for issuance of units for cash other than rights issues-this could hinder the capital raising exercises of smaller REITs whose fund size is less than RM100mil. However, this ruling would not have an effect on the larger players.
• REIT managers would have more freedom to invest in foreign real estates.
• It also allowed a portion of a REIT’s portfolio to consist of real estates that it does not wholly own or have a majority ownership.
• REIT Managers are now able to raise funds faster for acquisitions or capital expenditure purposes
• REIT Managers are now allow to seek a general mandate from unit holders for issuance of units up to 20% of its fund size. Previously, the issuance of any number of new units required REIT Managers to hold meetings to seek unit holders’ specific approval.

Failure to deduct the tax and remitted to the Inland Revenu within one month  will result in:

• a penalty of 10% of the unpaid tax and
• both the tax deducted and the penalty are debts due to the Inland Revenue.
• note that prior to 2/9/2006, the penalty is imposed on gross distribution.

(b) Capital allowance

• can be offsetted against the adjusted income of rental but the excess of capital allowances in a year of assessment cannot be carried forward which will be permanently loss[s63c(4)]
• capital allowance is not restricted to the qualifying capital expenditure provided to derive rental income. It also includes any qualifying capital expenditure used in the business of REIT

REIT has as a distinctive feature since there is non-availability of setting off business loss or carrying forward business losses and capital allowances

They viewed that the relaxation of certain REIT’s rules are crucial to the development of the Malaysian REITs due to:

• Malaysian properties are still relatively cheaper than our neighbours like Singapore, Hong Kong and China where there is upside potential in asset revaluation or further capital growth and
• That the Malaysian REITs also offer more attractive yields than the Singaporean counterparts, with some offering yields as high as 8% and 9%, compared with around 5% or 6% offered by Singapore REITs,

So what’s are some of their wish lists:

1.0 Firstly, they hope that the Malaysian government would review the withholding tax in the Budget 2009. Once the withholding tax is abolished or revised downwards (comparable to Singapore, the industry will improve further. (Neighbouring Singapore is frequently viewed as the more attractive destination for investment due to its lower withholding tax for foreign investors at 10% versus the 20% applicable to

2.0 Next, the hope that the government would  allow Malaysian REITs to invest in development projects. Incidentally in Malaysia, REITs are not permitted to invest in development projects but only in completed properties, which some players feel closes the door on opportunities to gain cheaper entries, thus maximising yields. It is understood that the Securities Commission may review this, however, there is still no official word.

3.0 Last but not least, the REIT players also welcome being allowed to manage their own REITs, currently not possible under the Valuers, Appraisers and Estate Agents Act 1981 that they are bound to. Under Section 21 of the Act, only registered valuers and appraisers are allowed to manage a property on behalf of the owner for a fee, a ruling which also applies to the management of REITs. The reasons being the REIT players believed firstly they themselves have the necessary expertise to run their own REITs and that they also believed that there is presently a scarcity of valuers with sector-specific experience related to REITs.

(Source: The Edgedaily.com 25/5/08)

More details from UOA Reit Manager:

• The property is known as Wisma UOA Pantai, on the land measuring 3,883 sq m.
• The property would be undertaken by UOA Holdings’ subsidiary, Magna Tiara Development Sdn Bhd.
• The offer followed the rights of first refusal granted by UOA Holdings to UOA REIT to acquire suitable properties from the group.
• Wisma UOA Pantai which was completed in the second quarter of this year, has about 157,481 sq ft of lettable areas with 272 car park bays, and had been issued a certificate of fitness for occupation on July 9, 2007.
• The acquisition price of the property was based on a willing-buyer willing-seller basis after taking into consideration the market value of RM93.1 million, as appraised by an independent registered valuer in Sept 2007.
• Further details of the proposed acquisition would be announced at a later date upon the execution of the sale and purchase agreement.

The event was graced by the Sultan of Selangor, Sultan Sharafuddin Idris Shah.  

A total of nine awards were given out at the annual event dubbed the “Oscars” of the property industry. 

The other awards and winners were:

• MASTER Plan Category – Sentul West and Sentul East Master Plan by YTL Land and Development Bhd; 
• RESIDENTIAL Development (high rise) – Stonor Park by Beneton Properties Sdn Bhd;
• RESIDENTIAL Development (low rise) – Pinggiran Bayou by Leisure Farm Corp Sdn Bhd; 
• RESORT Development – Genting Highlands Resort by Resorts World Bhd; 
• RETAIL Development – KB Mall by YS Tang Holdings Sdn Bhd; 
• SPECIALISED Project – Sultan Abdul Aziz Royal Gallery by Laurent Lim Architect; 
• SPECIALISED Project – Persada Johor International Convention Centre by Persada Johor International Convention Centre; and 
• SPECIAL Award for National Contribution – The Kuala Lumpur Performing Arts Centre by YTL Corp Bhd. 
• Resorts World bagged the Best Resort award. 

(The Star Malaysia 28/10/07)

Recently, Atrium REIT (real estate investment trusts) though among the smallest in terms of market capitalisation (RM130mil), has in the past several months been enjoying quite a bit of the limelight.

Comments from AmResearch:-

• Atrium yield is comparable with the larger REITs and probably by virtue of its size and focus, it is probably also more pliable and dexterous;

• Atrium REIT’s focus is in logistics warehousing, a service industry that complements the country’s export-oriented industries. Other REITs have their focus on retail, commercial or office rental business.

• Atrium manages its business. The Reit deals with MNCs, not just anyone. Most of their tenants are from the Fortune 500 list.

• Their rental agreement is between five to six years which spells stability.

• Most of the places where their properties are sited are very strategic. Other than this recent purchase, most of their properties are freehold.

• Recently, Atrium has entered into a sale and purchase agreement to buy an industrial building at Senai Industrial Park for RM12.5mil cash. This acquisition will raise its total asset size to RM171mil from RM158mil. Rent is locked in for the next five years with multi-national company Flextronics Technology (M) Sdn Bhd until 2011. They have the option to renew that tenancy for another five years,The property sits on seven acres of leasehold land expiring in 2054. Based on the annual gross rental yield of 9.6% and having considered the incremental property and non-property expenses and higher borrowing costs, the acquisition is expected to raise its financial year 2008 dividend per unit by 5% to 8.7 sen from 8.3 sen previously. The acquisition will increase the gearing ratio to 33% from 28% currently.

• The Reit can afford another acquisition to the tune of RM55mil before hitting the 50% gearing limit [Atrium will not be exceeding a gearing level of 40%.]

• By the end of 2008, Atrium is expected to have additional RM229mil worth of acquisitions to more than double its asset size to RM450mil.

• Besides its recent acquisition in Senai, Atrium’s assets are located in Shah Alam, Puchong and Rawang. The growing trend of outsourcing of logistic services will boost Atrium’s income. It is estimated that third party logistics (outsourcing of the logistics component by MNCs) is expected to grow to US$28bil in revenue by 2012 from US$15bil last year. The market in Malaysia is expected to be worth US$3.5bil in 2007 (2006: US$3.3bil).

Property Prices & Oil Factor:

The overall increase in property prices in the country in all sub-sectors of property, also bodes well for the REIT business. Rising property prices usually parallel rental yield. The oil factor is another element. Oil prices have hit the unprecedented US$90 a barrel. This will have a domino effect across all sectors of the economy, from transport to building raw materials. With cost of construction expected to rise further, property prices are expected to move up, hence the importance of having solid assets.

(The Star Malaysia 27/10/07)