REIT Index to offer greater transparency in industry

KUALA LUMPUR: The new Bursa Malaysia’s Real Estate Investment Trust (REIT) Index will help provide greater transparency in the REIT Industry and promote stronger governance practices and instill greater market confidence.

Bursa Malaysia Bhd chief executive officer, Datuk Seri Tajuddin Atan, said the Malaysian REIT industry has matured to the point where the exchange felt it was the right time to launch the index.

“The index also has the potentials to provide a further boost to liquidity in the market and greater visibility for the development of a wider range of REITs, such as the more exotic types, including those linked to renewable energy or childcare centres.

“In the US, there are even REITs linked to prisons,” he said at the launch of Malaysia REIT Index yesterday.

Malaysia joined developed markets such as the US, Hong Kong, Japan, Australia and Singapore, in having a dedicated REIT Index by launching the index today, its 11th in-house calculated index.

Tajuddin said the REIT Index, which would track all listed REITs on Bursa Malaysia, was aimed at increasing the profile of the REITs and would serve as a benchmark to gauge their overall performance.

“The introduction of the index is in line with global trends where REITs have become a major asset class for investors, especially those looking for high dividend payouts.

In evaluating the readiness of the Malaysian REIT industry for the new index, Tajuddin said, the exchange backtested it against the performance of the FTSE Bursa Malaysia KLCI (FBM KLCI) over the past three years.

“Looking at the data, our findings showed that the index would have outperformed the FBM KLCI and Property Index by 15 per cent and 26 per cent respectively.

“The dividend yield for REITs was five per cent in September 2017 compared to three per cent dividend yield of the FBM KLCI,” he said.

He said adding REITs to a diversified investment portfolio would increase returns and reduce risks.

There are currently 18 REITs listed on Bursa Malaysia, including four syariah-compliant REITs, accounting for 2.4 per cent of the total market capitalisation.

As at Sept 30, 2017, the market capitalisation for REITs stood at RM44 billion compared to just RM5 billion in 2007, representing a compound annual growth rate of 24 per cent.

Malaysia’s REIT Index was set as a market capitalisationweighted index, with constituents’ weighting capped at 10 per cent, to prevent any single constituent from exerting a disproportionate influence on the index.

Newly-listed REITs will be eligible for inclusion into the index three months after their initial public offering date.

The index design, formulated upon consultation with the industry, is supported by the Malaysian REIT Managers Association. — Bernama