Property Review (Australia), 13 October 2004
By Nelson Yap
In a sign that the Asian property market has recovered from the symptoms of the Asian financial crisis, one of the regions economic forces, Malaysia is setting up shop for the country’s first real estate investment trust.
Malaysia’s expanding economy is providing just the catalyst to boost the regions property prices, lifting rental income and capital gains.
Following the footsteps of Japan and Singapore, the Malaysian government last month legislated REITs to be exempt from tax on income distributed to unitholders.
And now YTL, the country’s biggest builder and an owner of luxury hotels, is planning to establish the country's first real estate investment trust with a market cap of 1.5 billion ringgit ($US395 million).
YTL plans to put its Starhill and Lot 10 shopping centers, including retail space bought from Singapore's C.K. Tang, and the J.W. Marriott hotel into the trust.
YTL managing director Francis Yeoh said the trust will be set up "as soon as possible" to take advantage of tax breaks for REIT investors announced in September.
"The REIT is an alternative way to unlock capital for YTL.
“The additional capital will allow the company to look for more properties to reinvest in and give a yield to people who want to invest in the YTL name, especially on property,” Yeoh said.
"It's going to be a new asset class for Malaysian investors, in addition to just bonds, shares and government securities," HLG Asset Management Richard chief executive Lin said.
"We're quite excited to see the government pushing for REITs and giving incentives."
According to the 2003 annual report, YTL's two shopping centres in Kuala Lumpur's commercial center, together with the J.W. Marriott hotel, had a combined book value of RM471 million as of June last year.
The properties, which YTL bought for approximately RM323 million during the Asian financial crisis, have a current market value of RM1.5 billion.
The proposed REIT is expected to give investors a return of 7% to 8%.
The REIT will be open to both domestic and overseas investors; YTL has short-listed two investment banks to advise it on the sale.
"The equity market is a bit fickle. The nature of equity is always the flavor-of-the-month stories
"Properties, REITs and bonds are more structured. It's less speculation and makes Asians feel more comfortable with this instrument because they are property-oriented," Yeoh said.