First thing first:

This is NOT a freaking buy/sell recommendation. 

The purpose of this article is to share my personal thought process on these REITs, and hopefully provide you some alternative insights and/or head start in your research.

It is my strongest suggestion that you do not follow what I have written in this post blindly, as this will only pause and even reverse your growth as an investor.

Do your own research, form your own narrative, and make your own investment decision.

With that, let’s start.


Criteria

There are several basic criteria on why these are the REITs in my watchlist. 

Let’s go over them briefly:

1. Healthy Balance Sheet.

Balance Sheet health tells us a lot about how a company is managing its liabilities (eg. debt) relative to its assets.

As such, REITs with a healthy balance sheet are most likely in a good financial state, and hence able to sustain their business during volatile periods like right now.

Generally, a REIT with a healthy balance sheet should have a Current Ratio > 1.0 and Gearing Ratio < 0.40.

To learn more about the most important things that I look into when investing in REITs, click HERE 

2. Decent probability to sustain and even thrive during/after the pandemic.

This means any REIT in this list is in the business where they are able to survive/thrive this pandemic and grow upon recovery.

3. Around 2 – 5 years investment horizon.

Depending on the REIT in this list, my investment horizon is generally in a medium to medium-long term period. Barring any fundamental shift in business nature, some of them could go even longer.

Again, I am a firm believer that both business and market are dynamic. 

With that in mind, there is no reason not to be adaptable and shift accordingly as the market and business evolve (or gone obsolete) with time.


4 REITs I am Watching Now:

1. IGB REIT (Aggressive)

IGB REIT is a retail REIT with notable properties under its portfolio – Mid Valley & The Gardens. 

  • Opportunities/What I Like:

IGB REIT may present an excellent long-term opportunity due to its exposure to prime malls (ie. Mid Valley & The Gardens).

As such, historically, Mid Valley & The Gardens have always been well-occupied with a strong tenant base. As of Financial Year (FY) 2019, both Mid Valley & The Gardens were 99% occupied.

With its respectable balance sheet, they are most likely able to brace through this pandemic storm.

Another question that I always get is the threat that e-commerce poses towards retail REITs. Personally, I think e-commerce will certainly shift the retail landscape and retail REITs will have to adjust accordingly.

In this case, I think malls like Mid Valley and The Gardens have been positioning themselves well towards recreation/experience-based consumers where the main reason people go to these malls is not so much to buy vegetables, but to meet up, makan, and have a good time with family and friends.

As a REIT with malls that cater to recreational purposes, I am confident that IGB REIT will experience a strong business recovery post-pandemic. (read: Malaysians cannot stand staying at home forever)


  • Risks:

Without a doubt, the retail business is going to experience turbulence in this short to medium term period. No one can tell for sure when this pandemic will come to an end.

Having known this, the tenancy status for IGB REIT for FY2020 and FY2021 is crucial as we may see less-capable tenants closing down or discontinuing their tenancies. This can get worse if we get another wave of outbreaks which will deal a huge blow to retailers and IGB REIT’s earnings.

Also, I am not in favor of IGB REIT’s share price. Since the March sell-down, the share price has gone back to near pre-selldown level of around RM1.70 – RM1.80. 

For me, I think the market may be way too optimistic about the speed of retail recovery and hence I think the price right now does not justify the downside/risks in IGB REIT. 


  • TLDR:

In short, I am confident with the long-term business recovery prospect of IGB REIT, but the short-term turbulence and bloated share price are something to take note of. 

Hence, this makes the overall risk package of IGB REIT rather aggressive at this moment in time. 

Mid Valley is the flagship retail mall under IGB REIT. (photo source: online)

2. KIP REIT (Moderately Aggressive)

KIP REIT is also a retail REIT with its flagship KIP Malls under its portfolio.

  • Opportunities/What I Like:

Unlike IGB REIT that runs recreational retail malls, KIP REIT runs neighborhood-centric retail malls that focus on providing everyday essentials to nearby communities. 

This means that in the face of Covid-19, KIP REIT will be more resilient compared to IGB REIT as the demand for essential items will always be there.

In addition, KIP REIT’s solid balance sheet also keeps them in a good position to brace through this storm.

Lastly, for FY2020, the top 3 revenue contributing malls for KIP REIT stands at a healthy occupancy rate of more than 90% (Tampoi, Masai, AEON Kinta City). Of all, AEON Kinta City Mall is being locked in with a master lease until 2026, ensuring stable earnings moving forward.

p

Average Occupancy Rate of KIP REIT for FY2020 (Source: KIP REIT Annual Report)
  • Risks:

One obvious risk for KIP REIT is its lower than ideal occupancy rate for several malls (ie. KIP Mall Melaka and Bangi) for FY2020. 

In addition, even though KIP Malls generally serve essential needs, I spotted a potential weakness in the tenancy structure. A notable one is fashion apparel tenants make up nearly 24% of KIP REIT’s rental income for FY2020. 

In other words, KIP REIT is still exposed to typical retail risk in this pandemic as they have tenants that are also in the non-essential segment/business background.

Finally, on a long-term basis, the potential growth prospect for KIP REIT’s neighborhood-centric business model may be limited and less exciting compared to the likes of IGB REIT.

Tenants’ Segmental Breakdown of KIP REIT. (Source: KIP REIT FY2020 Annual Report)
  • TLDR:

At the present, KIP REIT is a more resilient option for retail REIT, but they are still exposed to the underlying retail risks to some extent. 

Hence, I’d categorize KIP REIT as moderate-aggressive risk at this point in time. 

KIPMALL Kota Warisan – KIPMALL
KIP Mall Kota Warisan. (Photo source: KIP Mall site)

3. MQ REIT (Moderate)

MQ REIT is mainly an Office REIT with minor exposure to the retail and car-park space.

  • Opportunities/What I Like:

Screening through MQ REIT’s financial report, it is not hard to find what to like with MQ REIT. 

An obvious one is that it’s tenancy status that consists of notable names like Shell, BMW, Tesco, Google, and more. This generally implies the quality of tenants and overall income stability. 

Aside from that, MQ REIT has a strong Weighted Average Lease Expiry (WALE) of around 4 years. Essentially, this tells us about the stable tenancy status of MQ REIT to some extent.

Lastly, compared to the historical price movement, MQ REIT seems to have some upside space to grow further.


  • Risks:

For FY2020, about 19% of MQ REIT’s Net Lettable Area (NLA) is due for renewal. With this current challenging sentiment, there are surely uncertainties involved with tenancy renewal. 

Also, being in the (boring) office space business, I honestly think that there is a lack of growth stimulus in the space in the long-term. 

Just don’t expect this REIT to flip your wealth over multiple times when you invest in it.


  • TLDR:

Overall stable outlook should the management is able to retain their existing tenants. As such, I’d categorize MQ REIT within the moderate risk profile. 

MQREIT new leases seen contributing to income from 3Q | The Edge Markets
Source: mrcbquillreit.com

4. Atrium REIT (Moderate)

Atrium REIT is an industrial REIT that basically owns or manages warehouses, factories, and logistic facilities.

  • Opportunities/What I Like:

With the acquisition of Atrium Bayan Lepas 2 in FY2019, Atrium REIT has experienced growth in earnings for FY2020 despite the pandemic.

Also, the common thing with industrial REITs is that their tenants are usually locked in for multiple years, ensuring steady revenue for a long period of time. This is especially helpful for Atrium REIT to sustain themselves even in this challenging climate.

In addition, there are also planned acquisitions for Atrium REIT for FY2020 which will further boost the growth of the company moving forward (highlighted in Yellow).

p

Source: Atrium REIT 2Q FY2020 Report
  • Risks:

Risk of planned acquisition not going through, as shown above (highlighted in Orange) :

Risk of tenancy renewal, as shown below:

Source: Atrium REIT 2Q FY2020 Report
  • TLDR:

With the master lease business model, Atrium REIT stands out to me as one of the very few REITs with a stable growth outlook even during Covid-19. Considering the risk of tenancy renewal, I am of the opinion that this REIT would be more of moderate risk investment at this point in time.

Source: atriumreit.com.my

No Money Lah’s Verdict

So here you go – the 4 REITs that I am watching right now, and the thought process behind each of them. 

Hopefully this article has been helpful to you, and again, please do your own research before investing!

Love to hear your thoughts too – what are the REITs that you are watching at the moment and why? 

Feel free to share with me at the comment section below!


p.s. This article is written on the 8th of October 2020 and will NOT be updated going forward. On that note, I usually share my latest and most updated thoughts with my private REIT investing community for FREE on a monthly basis.

“How do I get access to this community?” Glad you asked.

Essentially, the ones that have attended my REIT sharing session will have full access to the community. If you are keen, you can sign up for my 2021 REIT Investing Sharing Session waitlist HERE and be the first to be notified when the registration is opened!