SC guidelines on REITs get positive reaction

PETALING JAYA: The New Securities Commission Malaysia (SC) guidelines outlining the way local real estate investment trusts (REITs) conduct their business will bode well for the industry.

Maybank Investment Bank Research (Maybank IB) said the newly revised guidelines, which take effect from April 9, 2018, allow Malaysian REITs to undertake property development activities that include the acquisition of vacant land.

“We are slightly positive on this new ruling as it would enable REITs to increase their earnings and yields via asset development/ redevelopment activities.

“However, we believe this would only benefit REITs with medium to large asset value base, due to limitations for their aggregate investment value (from development activities) up to 15% of the REIT’s total asset value.”

Under the new guidelines, at least 75% of a REIT’s total asset value must be invested in real estate that generates recurrent rental income at all times.

Previously, at least 50% of a REIT’s total asset value must be invested in real estate and/or single-purpose companies at all times.

REITs can also acquire real estate through lease arrangements.

“The lease must be registered with the land authority (or relevant land authority if outside of Malaysia).

“The REIT has the relevant rights, interests and benefits as a lessee of the real estate,” said Maybank IB.

It added that undertaking property development activities would entail additional construction risks to local REITs, such as costs overrun and delay in delivery.