Last week, I updated an article about the top 10 Singapore REITs that would have made you money if you invested from their IPOs. Out of the 24 S-REITs that have been listed for at least 10 years, 19 of them gave a positive overall return for investors.
In this article we are going to measure the performance of REITs that are listed in Malaysia.
Since the pandemic in 2020, Malaysian REITs have performed poorly. Currently, the sector is still more than 20% below pre-pandemic price levels. The underperformance is mainly due to the fact that the majority of Malaysian REITs are made up of retail and office REITs which were badly affected by the pandemic.
It might seem that REITs are unattractive given their prevalent underperformance. However, it’s crucial to recognize that short-term fluctuations in share prices don’t always reflect the true value of REITs. While future outcomes can never be guaranteed, it’s important to understand that short-term share price movements are often influenced by news and market sentiment. In contrast, long-term performance is primarily driven by the underlying fundamentals of the REITs. Therefore, while current performance may appear lackluster, it’s essential to take a broader perspective and consider the fundamentals for a more accurate assessment of REITs’ potential.
In this article, we will examine the performance of REITs with a listing history of at least 10 years. Specifically, our analysis will encompass the 15 Malaysian REITs (M-REITs) that were listed in 2013 or earlier. No new additions have been made to this cohort in the present year, as there were no new REITs listed in 2014.
We will make a similar assumption that Sophia (a fictional character) invests RM1,000 in each of these REITs from the day it listed. Since Sophia is a hard-core income investor, she doesn’t want to come out with any money to subscribe to rights (if any) and is prepared for any share dilution. Let’s also assume that she neglects to sell her nil-paid rights from which she can make a profit from.
For example, if Sophia invested in Sunway REIT from its IPO in 2006, her initial investment of RM1,000 would have grown to RM1,730 (+73% in capital gains) by 31 December 2023. On top of that, she would have collected total dividends of RM1,170 (117% in distributions).
From the table above, Sophia would’ve made a nice return in Sunway REIT as her initial investment of RM1,000 would have grown to RM2,900 including the dividends received over the years. If she invested RM10,000, then her investment would’ve grown to RM29,000; RM100,000 will turn into RM290,000. Basically, the more money she invests, the more she makes. And the longer she holds, the more dividends she receives. All in all, her compound annual growth rate (CAGR) from Sunway REIT alone is 8.54% from 2010 to 2023. So after investing for more than 10 years, here are the top five best-performing Malaysian REITs for Sophia.
Note: We’ve excluded brokerage costs, currency exchange gains/losses and taxes that might be applicable to foreign investors.
5. Atrium REIT (CAGR: +6.12%)
Since 2005, every RM1,000 investment in Atrium REIT would’ve turned into RM1,310. Including the dividends, every RM1,000 would cumulatively become RM2,580.
4. IGB REIT (CAGR: +7.02%)
Since 2012, every RM1,000 investment in IGB REIT would’ve turned into RM1,380. Including the dividends, every RM1,000 would cumulatively become RM2,110.
3. Pavilion REIT (CAGR: +7.39%)
Since 2011, every RM1,000 investment in PAVREIT would’ve turned into RM1,380. Including the dividends, every RM1,000 would cumulatively become RM2,350.
2. Sunway REIT (CAGR: +8.54%)
Since 2010, every RM1,000 investment in SUNWAY REIT would’ve turned into RM1,730. Including the dividends, every RM1,000 would cumulatively become RM2,900.
1. Axis REIT (CAGR: +10.74%)
Since 2005, every RM1,000 investment in Axis REIT would’ve turned into RM2,860. Including the dividends, every RM1,000 would cumulatively become RM5,320.
In summary, here is Sophia’s overall performance:
As you can see, Sophia’s M-REIT portfolio is a sea of green! M-REITs that have been listed for at least 10 years or more have given consistent dividends and positive overall returns if you invested from their IPOs.
However, do note that Sentral REIT, KLCC Property, YTL Hospitality, Hektar REIT, AmanahRaya REIT, Tower REIT, CapitaLand Malaysia Mall Trust and AmFirst REIT are sitting on capital losses. But when we include dividends received over the years, their overall return is still positive. In fact, dividends accounted for about 90.8% of the total return!
During bear markets, such as the last three years, dividends play a crucial role in cushioning the impact of market declines on Sophia’s investments. They provide a steady income stream, which can help offset losses from falling share prices and contribute to overall portfolio stability.
Conversely, when bull markets return, capital gains become more prominent and contribute significantly to the overall return on investment. As share prices rise, Sophia may see substantial increases in the value of her REIT holdings, leading to higher overall returns in addition to any dividends received.
The fifth perspective
With Malaysia fully reopening its borders and anticipating tourist arrivals to surpass pre-pandemic levels in 2024, there’s optimism for better days ahead, particularly for retail REITs. Landlords holding high-quality retail assets are expected to benefit from increased foot traffic and consumer spending, potentially leading to improved rental income.
As tourism rebounds and economic activity picks up, retail establishments housed within these REITs may experience heightened demand, allowing landlords to negotiate higher rents with tenants. This positive outlook suggests a potential uptick in revenue for retail-focused REITs, paving the way for improved performance and returns for investors in this sector.
Singaporeans and foreign investors who are wary of forex risk may be hesitant to invest in Malaysian REITs (M-REITs) due to the persistent weakening of the ringgit over the long term. However, for Malaysians themselves, this currency fluctuation is inconsequential since M-REITs are traded in their home currency.
For Malaysian investors, M-REITs remain a viable option to establish consistent streams of passive income. Without the added concern of forex risk, they can focus on the inherent qualities of the REITs themselves, such as the quality of assets, rental income potential, and overall performance. This makes M-REITs an attractive investment avenue for locals seeking to generate steady returns without exposure to currency volatility.
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