24 March 2018

Why M-REITs are suffering now ??? (March 2018)


Real estate investment trusts (REITs) has been the favorite for those investors seeking stable yet attractive yield. Instead of putting money in bank's fixed deposit, many of us would rather be investing the money into REITs.

CMMT suffers the most YTD with around 30% price drops.

However, things turn worse recently (especially since the beginning of 2018) due to a few reasons. Prices of REITs suffers and no longer considered 'stable' anymore, thus pushing the dividend yield abit higher now.

Dividend yield higher seems to be more attractive ???
First of all, we must understand that higher yield doesn't necessarily mean it's good. It could be due to falling prices of the stocks, and not higher income receives. And, the current yield is based on the past one-year dividends payout over current market price. Whether or not the dividends could be sustainable is a concerned to investors.





And, why all M-REITs are suffering now ???
  1. Oversupply issue
    Property market already stagnant (if not decline) since 2016 until now. The oversupply of office spaces and shopping malls exacerbated further, especially in Klang Valley. Retailers were suffering from the impact of e-commerce which change the patterns of people spend money nowadays, moving from visiting malls. Food and beverages operators also facing stiff competition amid falling footfalls in malls.

    Over-supply spaces plus under-demand from consumers resulting in difficulties faced by REITs managers to optimize the spaces they're having now. If they could maintained their current tenants with current rental rates, it considered a blessing already.

  2. Rising interest rate environment
    In January, Bank Negara Malaysia (BNM) started to raised the OPR by 25 basis points, for the first time in 4 years. Every rate hike could dampen the dividend payout to investors because of higher interest charges for loan servicing. Jan is the first hike only, and BNM already guided us that there could be total 2 or 3 hikes this year. Lower income means lower dividends/distributions, and this will make REITs not attractive anymore. 
One new good thing...
Effective 9 April 2018, M-REITs have given the flexibility to indulge themselves into property development. The changes was announced by Securities Commission (SC) recently and under the revised guidelines, REITs can undertake property development activities such as buying vacant land and developing the land, up to 15% of the REIT's total asset value.

Hopefully, M-REITs could ride out from this 'business climate' change.
Happy investing!


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