Well it depends on how much do you think the MGS can rise in the future, historically over the last 20 years average is 4.5=5.0%, now is 3.98%. I see 5% is the max in the future, means Class 1 Retail REIT yield need to be 100-150 bps above mgs, so that works out the be 6%-6.5%. Lower class REIT will tend to require higher 200-300 bps above MGS.

This post has been edited by gark: Oct 10 2013, 09:45 AM

i have a no. of them.

best peformer had been axreit.

but at this time, i wud suggest u look at pavreit and sunreit if u hav an appetite for pot cap gains alto yields are relatively low now.

for low chance of cap gains but fair n stable yields, uoa and arreit will fit.

conventional 10 yr mgs is currently 3.72%, not as high as 2 months ago as us bond yields retreated.
http://www.bnm.gov.my/index.php?tpl=govtsecuritiesyield


but there seems to be a brewing problem -the recent bond issue, no foreign takers, all local, can assume epf doing bee-end service.
if budget 2014 does not trim deficits and keep spending only, another downgrade or warning of downgrade, foreigners continue to shun these bonds, future issues will cost more, yields keep rising.
immediate future, agree mgs won't cross 5% so quickly.
so for now, "best quality reits", >5% is expected.
check against the "safe" banks fd rate of 3.2-3.3% (drop from 3.6-3.7 a year ago), 5-6% reit yield is reasonable for me.

This post has been edited by AVFAN: Oct 10 2013, 10:33 AM

sorry i am kinda confused here, hope you don't mind, that fair value = yield or otherwise? which mean reit with fair value more than 6% should be avoided?

No.. different class of REIT have different growth & risk. More stable, higher growth and lower risk REIT will have the lowest yield and vice versa....

This post has been edited by gark: Oct 10 2013, 01:50 PM

I am not agreed on that part, as I do not see interest rate to go up for near to mid term if current economy situation remain roughly the same and has no major change.

Bond yield may be normalising back to its normal day, but it doesn't pressure central bank to raise rate.

ah i see, i got it thks teacher, i am kinda slow in catching up lol. need to learn more from you guys.

This post has been edited by nightzstar: Oct 10 2013, 02:51 PM

Agreed, in similar contex, taperin does not mean interest rate increase. 2 separate and different events here !

However... tapering affects bond yields, and bond yields affect REIT yield....

Interest rate not going up, but that does not mean bond yield not going up...

Yes, this I agreed.

But bond yield just normalise back what it should be before the start of QE3.

Bond yield rising doesn't must mean interest rate going up. Many people confuse on this part.

Normalized bond yield for MGS should be about 4.5% to 5%. Means still got 50-100 bps to go...

But bond yield and interest rate spread too big also not sustainable in long term. Market forces will push to close the gap as actual capital raising cost will be increased with bond yield...

This post has been edited by gark: Oct 10 2013, 05:44 PM

I still think world economy is improving although at slow pace. Especially China and US. China is on right track to rationalize its growth pace, it's a bravo job so far.
Our gomen is cutting subsidize, this should be a continue effort in next few years. Inflation rising is just a matter of time and the speed of increment.
To add the above two points, I still think interest rate will increase in future years in moderate pace.
However, a big uncertainty is various countries QE effect. Nobody know what could happen after US and Japan etc. completely stopped their QE exercise.

100 bps to 4.5% (worst case scenario) is 22%. Meaning to neutralize capital depreciation on REITs, a 22% profit growth is expected by the time bond yield reaches that normalized level.

1 forumer mentioned that BNM will increase the BLR by 0.50%
Any1 hear anything?

Bond yield 4~5% vs interest rate of 3%, seems about right.

Bond yield should be a notch higher than interest.

When QE3 was flooding the market with money, some corporate bond yield only 4~4.5%, how can taking risk of default that investors only get extra 1% as compared with FD.


Most central banks nowadays opt for growth instead of taming inflation rate.
In fact, many already getting negative real interest rate, but central banks seems doesn't bother much.
While many target to have inflation.

Locally, although inflation is always a big threat, slow economy may be more in the mind of BNM.

Raising rate to control inflation only effective when you have inflation that is demand pull, aka huge demand that pushing price to go up. In this situation, raising rate can tame the demand eventually dented the inflation.
But currently we have cost pushing factor inflation, that raising rate won't have much effect to tame the inflation. Oil price, flour price won't be dropping or stop rising, even though BNM raise OPR to 10%.
While raising rate can send the already slowing economy into stall speed, which if situation become worst, open the can of worm NPL, as household debt level is at concern level already.

Just my 2 cents.

some IBs estimated that.
only becomes realistic when it happens.
last year, also got IBs estimate 2013 will up interest rate, but so far nothing happen as they now busy downgrading their previous GDP forecast.

This post has been edited by yok70: Oct 10 2013, 09:34 PM

The forumer has first hand info and knew even before Tan Sri Zeti.......?

Bond yield to normalize usually take 1 to 2 years. Can a reit get 22% growth in that time frame? That is why reits is currently on selldown..

Reit was riding too high previously, a correction is imminent. Reit shouldn't be getting capital appreciation like equities.

Sell down is good, at least give option to investor what to invest.

Not like previously, reit yield so low, dividend stock yield also low, equities high PER, bond yield so slow, don't know what to invest.

You are absolutely correct, but its good performance over the past few years have convinced many people reit is no or low risk. They should be aware that reits tend to rise like bonds during good times but fall like equities during bad times.