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Interview with CEO of Capital Malls Malaysia Trust (CMMT)

1. What are the advantages of a retail assets portfolio, especially for a pure play retail REIT like CMMT which most retail investors dont know about? 2. How does CMMT uniquely position itself among other new players in retail-focused M-REIT sector, such as Pavilion REIT and IGB REIT? CMMT is the only pure-play shopping mall REIT in Malaysia with an income- and geographically-diversified portfolio of four shopping malls: Gurney Plaza in Penang, a majority interest in Sungei Wang Plaza in Kuala Lumpur, The Mines in Selangor and East Coast Mall in Kuantan, Pahang. The portfolio has a total net lettable area of over 2.4 million square feet (sq ft). As at 30 September 2012, the total asset size of CMMT is about RM3 billion. Our portfolio offers investors geographical diversification and income growth as our malls are strategically located in four key urban centres across Malaysia. In addition, the portfolio also offers income diversification as there is no over-reliance on any single shopping mall or single retailer. CMMTs malls are largely focused on necessity shopping, which have proven resilient through economic cycles and should continue to do so. CMMT also benefits from our strategic relationship with our sponsor CapitaMalls Asia, which owns 35.93% of the units in CMMT. CapitaMalls Asia is one of the largest listed shopping mall developers, owners and managers in Asia, with 101 malls across 52 cities in Singapore, China, Malaysia, Japan and India. CapitaMalls Asias portfolio of shopping malls has a total property value of about S$30.7 billion (RM76.9 billion) and a total gross floor area of about 92.4 million sq ft. To strengthen CMMTs competitiveness in the market place, we continue to leverage on our access to CapitaMalls Asias business scale, competencies, and industry-leading retailer network, with more than 10,000 leases across Asia. We are constantly on the lookout to acquire or develop malls in the growing urban centres in both East and West Malaysia and will announce to the market when appropriate. We are confident that CMMT is well-positioned to capitalise on the growth opportunities in Malaysias retail sector. 3. Can you elaborate on the management strategy of a professional mall manager? Things like refreshing/optimize retail mix, bringing in new concepts to stay relevant, dealing with underperforming tenants, etc We work closely with many brands and concepts that cater to a wide range of age groups and customer profiles. Depending on the location, catchment and positioning, our malls serve the well-heeled and sophisticated shoppers at Gurney Plaza, families at The Mines and East Coast Mall, as well as the adventurous young at Sungei Wang Plaza. As a professional mall manager, we have expertise and experience in creating malls that people want to shop in. This includes not just the hardware of how we lay out the mall, but also the software of getting the retailer mix right. This enables rapid mall expansion, optimal tenant mix and stronger occupancies, and also gives us sustainable rental income. 4. What is M-REIT advantage compared to direct commercial property investment? (especially with Budget 2013 increasing RPGT, but the 10% withholding tax for REIT since 2008 has been extended to Dec 2016 since Budget 2012) M-REITs are better investments than property for following reasons: Tax M-REITs do not have to pay corporate tax if they distribute more than 90% of their distributable income. This leads to tax transparency and huge savings to an M-REIT, making investing in M-REITs more attractive. CMMTs distribution policy is to pay out at least 90% of distributable income in each financial year on a half-yearly basis. So far, CMMT has distributed 100% of its distributable income to its unitholders. No stamp duty on acquisitions When a seller sells real property to an M-REIT approved by the Securities Commission of Malaysia, gains from the disposal will be exempted from real property gains tax (RPGT), which is 10% on gains from the disposal of the property sold within two years of purchase and 5% if it is sold within two to five years. When an M-REIT acquires real

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property, all chargeable instruments relating to the purchase of real property are exempted from stamp duty. This presents huge savings to the M-REIT and seller, and gives both parties greater room for price negotiation. M-REITs are managed by professional managers On the note of withholding tax, the Malaysian Government has extended the tax incentive period of the withholding tax until 31 December 2016. We believe this will further promote the development of M-REITs and invigorate Malaysias capital and property markets. CMMTs portfolio of Gurney Plaza in Penang, a majority interest in Sungei Wang Plaza in Kuala Lumpur, The Mines in Selangor and East Coast Mall in Kuantan, Pahang are recognisable malls which investors and shoppers are familiar with, and can see how well the malls are performing. CMMTs portfolio offers investors income and geographical diversification and a compelling investment in a stable and resilient portfolio. As the only pure-play shopping mall REIT in Malaysia with an income- and geographically-diversified portfolio of four shopping malls, CMMT can be viewed as a defensive (i.e. safe haven) investment that provides a stable income stream. 5. What is the position of Queensbay Mall since its acquisition by CapitaMalls Asia on Dec 2010? Will it be part of CMMT portfolio in the near future? Since CapitaMalls Asia acquired Queensbay Mall, upgrades were carried out to realise the potential of the mall. These include remixing the tenancy and improving the asset plan. These have proven to be effective as Queensbay Mall achieved strong rental increases of more than 20%, as announced by CapitaMalls Asia. As and when CapitaMalls Asia decides to divest Queensbay Mall, we would be interested to acquire it, provided that it is in line with our acquisition growth strategy in enhancing unitholders value. 6. What is the current sentiment of local and foreign institutional investors in CMMT? As in, are they buying/holding/selling? Given the uncertain global economic environment, local and foreign investors have been looking to put money in safe haven investments such as dividend stocks, with low beta. M-REITs, especially the retail-focused ones, are such an asset class. The large listed retail M-REITs provide greater trading liquidity as a result of their size, and they also have recognisable malls which investors and shoppers are familiar with, and can see how well the malls are performing. With the strong domestic demand for investment-class yield products, there is also perceived downside protection in terms of the REITs unit prices. 7. Going forward to 2013, what is the outlook of retail-focused REIT? On the back of strong private investment and consumption, Malaysias economy is forecast to expand strongly between 4.5% and 5.5% in 2013. As a resource-rich country with rising disposable income, there is continued growth in Malaysias economy and retail sales. Malaysias economyremains a compelling retail investment story, amidst the uncertain global economic climate. Such growth bodes well for CMMT, as it will enable the retailers in our malls to post higher sales and, consequently, be able to afford higher rentals. As the only pure-play shopping mall REIT in Malaysia with an income- and geographically-diversified portfolio of four shopping malls, we will continue to look for opportunities to enhance our existing portfolio and to provide unitholders with further income and geographical diversification. On the capital management front, CMMT received approval from the Securities Commission of Malaysia on 6 June 2012 to establish a 20-year rated/unrated Medium Term Note (MTN) Programme of up to RM3 billion in nominal value. With the programme in place, CMMT now has another avenue of capital to tap for our growth. On 20 December 2012, CMMT MTN Berhad, a wholly-owned subsidiary of CMMT, issued RM300 million in nominal value of unrated MTNs under this MTN Programme. The unrated MTNs will expire on 20 December 2016. The proceeds from the unrated MTNs will be used to refinance existing borrowings undertaken by CMMT.

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Interview with CEO of Sunway REIT

LCF: Elaborate on the resiliency of Sunway REIT regardless of economic cycle with its diversified, sponsor-backed assets portfolio? Dato Jeffrey Ng: Sunway REIT is essentially a retail-focused REIT with 67% of its portfolio is in retail asset measured by assets value. The other sub-sectors that Sunway REIT operates in are hospitality, office and others (healthcare) (as shown in chart 1)

Chart 1: Portfolio of SunwayREIT by Asset Size (included acquisition of SMC) Source: Sunway REIT Inevitably, the three sectors where Sunway REITs properties are operating in are susceptible to economic cycles. The sensitivities of the performance of these assets to economic cycles may vary from one sub-sector to another. In our view, brandname, managements skills, credibility and track record as well as market positioning do contribute to the level of resiliency of the assets. Assets located within the captive market of Sunway Resort City (SRC) enjoy higher level of resiliency benefitting from the vibrancy of the township and cross-synergy amongst the assets and various activities (residential, retail, commercial, hospitality, education, healthcare, leisure) within the township. For eg. The flagship asset, Sunway Pyramid Shopping Mall has enjoyed CAGR rental growth of 6.3% for the last 12 years supported by high occupancy rate.

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On 9 October 2012, Sunway REIT announced the proposed acquisition of Sunway Medical Center (SMC) and obtained unitholders approval on 18 December 2012. The acquisition is expected to be completed by end December 2012. Through the acquisition of SMC, Sunway REIT is adding yet another quality asset into the portfolio. More importantly, SMC is a leading private healthcare center that is located within the township of SRC alongside with 4 other Sunway REITs assets. The inclusion of SMC will increase the total assets under management for Sunway REIT from RM4.63 billion to RM4.95 billion and diversify the income stream of Sunway REIT. In addition, Sunway REIThas entered into a masterlease arrangement with the hospital operator for an initial term of 10 years with the option to renew for another 10 years on a pre-agreed initial rental of RM19 million for the first year and annual incremental rental of 3.5% for the remaining 9 years of the initial term. Under the masterlease structure, Sunway REIT enjoys certainty in income stream with a guaranteed incremental rental reversion. By virtue of the long-term lease structure, the weighted average lease expiry is expected to increase from 2.09 years (as at 31 October 2012) to 2.56 years. LCF: How does Sunway REIT uniquely position itself among other new players in retail focused MREIT sector, such as Pavilion REIT and IGB REIT? Dato Jeffrey Ng: At the REIT level comparison, Sunway REIT is retail focused REIT with 63% of the portfolio in the retail segment measured by assets size. The retail exposure for Pavilion REIT is as high as 96% of its asset value (as at 31 December 2012) whilst IGB REIT is a pure retail REIT. Sunway REIT primarily differentiates itself through the level of diversification of its assets portfolio. The portfolio does not only enjoy the robust growth from the retail sub-sector but also income from other sub-sectors such as hospitality, office and healthcare. The strength of Sunway REIT lies in the core assets located in vibrant townships masterplanned and developed by our Sponsor. For example, in Sunway Resort City (SRC), our various assets in these townships enjoy the crosssynergistic benefits. The township factor is definitely another unique differentiating feature of Sunway REIT. LCF: Share prices of retail M-REITS have been surging as of late, compressing yields. Comment on this trend and whether retail REIT like Sunway REIT is still a viable choice for retail investors given the fact it is overvalued now? Dato Jeffrey Ng: Admittedly, unit prices of M-REITs have surged of late resulting in distribution yields compression. We reckon the demand for M-REITs especially the Top-4 in terms of market capitalization (IGB REIT, Pavilion REIT, Sunway REIT and CMMT) was driven by numerous underlying factors as stated below. The average distribution yields for M-REITs have been compressed from 7.1% in 2011 to 6.2% in 2012. Similarly, the top 4 retail REITs (by market capitalisation) were trading at distribution yields of 5.7% in 2011 (excluding IGB REIT as it has not been listed in 2011) and has been compressed to the 5% mark in 2012. We are of the view that there are factors supporting investors interest in M-REITs. Amongst the factors are:

Growing prominence of M-REITs in the region. Equity market uncertainties due to global uncertainties Low interest rate environment where there is yields differential between M-REITs and risk free investment (FD & MGS). This is more apparent for foreign investors that compare the yield differential between M-REITs and Fed Rate. Introduction of Private Retirement Scheme (PRS) may lead to portfolio monies sourcing for high yielding investments.

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The interest may potentially surprise us on the upside more so if M-REITs are able to demonstrate growth, organically or by way of acquisition, thus strengthening their income base.

With our growth strategies put in place, Sunway REIT is determined to grow its assets portfolio and income stream through active acquisitions, asset enhancements and capital management initiatives.

LCF: With regards to #3 above, seemingly the only option now is increase DPU to maintain or increase yield. If so, what are the strategies employed by property manager to achieve this going forward?

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Dato Jeffrey Ng:Distribution yield is a function of DPU and unit price. Improving yields essentially refer to increase in DPU assuming unit price remains unchanged. Increase in DPU can be achieved through organic, inorganic growth and proactive capital management. Organic growth is achieved through asset enhancement initiatives and asset management initiatives (eg. Rental reversion, conversion of common areas into lettable area, space reconfiguration, planned and ongoing refurbishments, etc). Inorganic growth refers to acquisition growth leading to new income stream. We believe that growth by acquisition definitely offer higher growth as opposed to merely relying on organic growth which in turn translates into higher DPU growth to unitholders.

The prevailing accommodative interest rate environment presents M-REITs the opportunities to enjoy a period of lower cost of debt. REITs may exploit such opportunity to restructure their existing loans to reflect the prevailing low interest rate regime. The lowering of cost of debt will results in savings in interest expense where the savings will flow directly into the distributable income to unitholders and enhance the DPU.

LCF: What is Sunway REITs strategy in managing borrowings? As in, what determines the percentage of fixed and floating rate mix? Dato Jeffrey Ng: Sunway REIT adopts a proactive stance in capital management. We have proactively embarked on a capital management initiative in 2012 to restructure our existing loans, thus lowering its average cost of debt from 4.45% (as at 30 June 2012) to 3.78% as at (31 October 2012). The savings in interest expense flows directly into distributable income for unitholders. The fixed versus floating rate ratio for Sunway REIT stood at 45:55. It is our strategy to allow half of the debt on floating basis to exploit the low interest rate regime. Should there be any interest rate cut in 2013, the floating rate portion will be able to take advantage of the drop in interest rate. On the contrary, when the interest rate trend moves up, the management will lock in the rate through interest rate swap and switch the floating portion into fixed rate. LCF: What is the current sentiment of local and foreign institutional investors in SUNREIT? As in, are the buying / holding / selling? Dato Jeffrey Ng: From our numerous investors meetings weve had over the last 2-3 months arising from our corporate exercise for the acquisition of SMC and the placement of new units, investors are showing strong interest in Sunway REIT. This is further affirmed by the overwhelming support from the unitholders who voted in favour for the various resolutions. Besides voting in favour of the resolutions, investors have indicated keen interest in participating in the placement exercise. Ultimately, the acid test will be during the bookbuilding and pricing exercise. In addition, we have and are still enjoying foreign institutional investors request for management meetings and site visits.

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Interview with CEO and CFO of AmFIRST REIT

Jaya 99 acquisition Signed the SPA on 16 August 2012 for Jaya 99 (Melaka) for purchase consideration of RM 86 mil and this was 100% funded by bank borrowings, post the rights issue Contributed additional DPU of 0.28 cents (on annualized basis based on 686 million units x 0.28 cents per unit = RM 1.9m); Based on Net Property Yield, this translates to about 7% which is commendable for this new investment grade commercial office building in Melaka.

CEO, YP LIM
LIM YOON PENG, CHIEF EXECUTIVE OFFICER

Lim Yoon Peng was appointed as Chief Executive Officer of Am ARA on 15 August 2008. He is responsible for the strategic direction, investment objectives and operations of AmFIRST REIT. Prior to joining Am ARA, he was the Chief Financial Officer of Axis REIT Managers Berhad, responsible for the finance and risk management functions including business and investment strategies, regulatory compliance, acquisition analysis as well as capital management.

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He has over thirty (30) years of extensive financial management and accounting experience in various multinational companies from UK, Australia and Malaysia. He spent four (4) years as the Financial Controller cum Company Secretary of Victoria Investment and Properties Pty Ltd, a group of companies involved in property investment and development in Melbourne, Australia before returning to Malaysia in 2005. Being one of the pioneers in Malaysian REIT industry, he was a speaker at a number of regional and international REITs conferences. He is a Fellow Member of The Chartered Association of Certified Accountants, UK and a Member of the Malaysian Institute of Accountants, and Fellow Member of Certified Public Accountant Australia. In September 2007, he was featured to write an article on REITs in ACCA Focus, a publication for Association of Chartered Certified Accountants (ACCA) Malaysia, as one of the 50 Chief Financial Officers, whom are ACCA members from many organisations across different industries and borders. He is also the Vice-Chairman of the Malaysian REIT Managers Association. Rights Issue Rights issue completed on 7th of August, which raised total proceeds of RM214 mil utilized to pare down the gearing from 45% to 28% to create additional headroom for the Fund to grow with new yield accretive acquisition. The rights issue also enhance the liquidity and marketability of the Units with Units in circulation post rights issue gone up from 429 mil to 686 mil The Rights Issues also provide entitled unitholders with an opportunity to subscribe for new Units at a discount to the prevailing market price and hence, mitigate dilution of the unitholders unitholdings in the Fund Why rights issue instead of private placement? Before the rights issue, the gearing of AmFIRST was 46%, close to the threshold of 50% of Total Assets. The Fund requires a sizable equity fund raising exercise to reduce the gearing to a more meaningful level so as to create sufficient headroom for the Fund to grow its investment portfolio particularly commercial properties have substantial transaction values; Under the REITs Guideline, a REIT is allowed under a general mandate to issue up to 20% of its existing fund size. This would only allow the Fund to raise a maximum of RM103 million (assuming no discount on issue price) to repay borrowing. The gearing ratio will not be reduced significantly (i.e. to 37.2%).; A private placement would be in favor of selected placees (who may or may not be existing Unitholders) with the discount of not more than 10%. Furthermore, the existing Unitholders unitholdings in the Fund will be diluted after the completion of the substantive placement exercise; On the other hand, a rights issue will allow all existing unitholders to participate in the Rights Issue on a pro-rata basis and hence mitigate dilutive impact of the Unitholders unitholdings in the Fund. Therefore, the management is of the view that rights issue is more equitable to the existing unitholders as it provides all unitholders with an equal opportunity to subscribe for new rights units at a discount to the prevailing market price while at the same time, will also enable the Fund to raise the adequate funds needed. In a nutshell, equity funding is able to accelerate market capitalization expansion and thereby, create greater liquidity for the REIT and this in turn would eventually generate more investor interest. Secondly, the REITs which are able to capitalize on equity funding now would have a strong first-mover advantage when it comes to future asset acquisitions. Notwithstanding this, investors generally prefer lowly-geared companies during times of uncertainty.

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HEAD OF FINANCE, CHONG HONG CHUON

Chong Hong Chuon, Head, Finance Chong Hong Chuon was appointed as the Head, Finance of Am ARA on 9 May 2011 and is responsible for the full spectrum of financial matters relating to AmFIRST REIT and this includes financial and management reporting, capital management, treasury and risk management. He is also the designated Compliance Officer for all statutory and regulatory matters. He began his career in the auditing field and has fifteen (15) years of extensive financial and management accounting experience. Prior to joining Am ARA, he was with Hong Leong group where he was involved in property investment and management division. His last position was Group Financial Controller of GLM REIT Management Sdn Bhd, the Manager of Tower REIT, where he was responsible for the financial and compliance functions including providing financial leadership on performance review, business planning and forecast as well as devising capital and risk management strategies. In addition, he was actively involved in the evaluation of acquisition opportunities, asset management and investor relations. He holds a Master of Science in Financial Management from The Robert Gordon University, UK and is a member of the ACCA, UK and Malaysian Institute of Accountants.

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Tenant trade mix management strategy: Pros and cons of Properties with diversified tenants (Wisma AmFIRST, etc) and properties with single tenant (Prima 9, 10). Close to 50% of AmFIRSTs investment properties are tenanted by its sponsor/parent company, AmBank Group. With this anchor support we can expect resilient earnings and occupancies generated by AmFirst REIT. Theres always counterparty risk but REIT managers seek to minimize this by selecting established and reputable tenants. Usually once a tenant has committed to a space and the premises are well maintained it is unlikely they will make a decision to move out upon the lease expiry due to relocation costs and disruption to its staff travel logistics Hewlett Packard Multimedia Sdn Bhd at Prima 9, Cyberjaya who had just renewed its tenancy for another 3 years. Also RBC Dexis Investors Service has committed to a 5 years lease at Prima 10 with a further 5 years renewal. Additional points Rental for related party tenancy is arrived based on independent market rental rates by independent valuers. This speaks volumes about the transparency of the REIT industry. What is the importance of AmFIRST REIT rebranding exercise by rename for many of its assets (most recently being Kelana Brem Towers)? Renaming or branding some of the building owned by the Fund is to reflect a consistent identity & ownership among all assets under a REIT. It projects a higher professional image and credibility, which helps in marketing to potential tenants. Tenants come in knowing that the building is owned by the fund and run by professional REIT manager.

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Interview with CEO of Axis REIT

Lieu Ching Foo: How is MRMAs role instrumental in bringing M-REIT sector to its current stage today? Stewart LaBrooy: The MRMA was established in May 2010 to achieve the following: To act as a collective representation of the Malaysian real estate investment sector. To establish an environment conducive for investors to invest in high quality real estate in Malaysia. To establish a framework for the development of the Real Estate Investment Trust (REIT) industry, to coordinate investment activities and promote networking possibilities within the region. Improve transparency and provide quality research and information to local, regional and investors. Develop common workable standards that meet with international best practices especially in the areas of financial reporting, disclosure and corporate governance. Represent members interests through lobbying the Malaysian Government and regulators for functional regulations, viable structures and tax harmonization in order to make Malaysian REITs competitive within the region and internationally. Encourage and promote the quoted property funds industry. Provide insightful market research and databases that can be practically utilized by members. Establish working committees that can formulate policies and coordinate the various activities. Introduce training and discussion forums to analyze applicable laws and legislation, trends and current issues, improve professionalism and knowledge within the real estate investment industry international

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A prominent speaker on Conventional and Islamic REITs in the region, Stewart LaBrooy is the CEO of the first REIT to be listed on the Mainboard of Bursa Malaysia in 2005; Axis REIT Managers Berhad. Stewart holds a Bachelor of Engineering (Hons) degree and a Post Graduate Diploma in Business Studies from the University of Sheffield. He is a Board member of the Asia Pacific Real Estate Association (APREA) and the Chairman of the Malaysian REIT Managers Association (MRMA).

Getting all the members together as an Association has been an important development for the REITIndustry in Malaysia as it enables us to work together to promote the development of the industry, with the best practices in the industry as our benchmarks and keep abreast of the latest developments in the REIT industry. This has had the effect of encouraging other companies to explore the listing of their assets as REITs through the success of the Malaysian REITs. We have 15 members to date.

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Malaysia is one of the two countries that have a REIT Managers Association. Lieu Ching Foo: What is the core management strategy of a great REIT manager (lets take Axis-REIT as an example) who is able to consistently deliver increasing return to unitholders even though during economic downturn? Stewart LaBrooy: The core of our strategy is: Targeting Growth in our asset class both organically and through acquisitions. A comprehensive Capital Management program run by our financial team. Enhancement of our existing assets to drive value and income. Trading of assets to reward our Unit holders. Comprehensive Risk Management strategies Embracing the Best Practices in accounting & financial reporting, property valuation, portfolio performance reporting investor relations and corporate governance. Setting Standards as a World Class Asset Management Company Leveraging on Technology & Sustainability Leading the Malaysian REIT Managers Association to drive Regulatory and Tax Reforms REITs are not just a collection of assets where rent is collected but rather it is a business that focuses on creating the highest returns for its Unitholders.

We dont refer to our tenants as customers and have a comprehensive program of tenant care and building maintenance to ensure that rents are justified and we can organically grow our rental returns to the Fund.

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Lieu Ching Foo: What is M-REIT advantage compared to its South East Asia counterpart, say, S-REIT? Stewart LaBrooy: All the REIT markets are different. There are 196 REITs listed in Asia Pacific with a market capitalization of USD 215 Billion. Country Number of REITs Market Cap. (US$ bn) AUSTRALIA JAPAN SINGAPORE HONG KONG MALAYSIA THAILAND NEW ZEALAND TAIWAN S. KOREA Total 52 35 27 9 16 38 5 6 8 196 87.4 49.6 39.2 20.5 8.0 5.0 2.6 2.6 0.4 215.1

For example the S-REIT market is a very liquid market that has a large foreign and retail participation. The M REIT is largely held by local institutions and has low foreign and retail participation. It is also a much smaller and less liquid market. However with the listing of the larger REITs Sunway, CMMT, Pavilion and IGB we have risen to an USD 8 billion market cap which places us 5th in the region in size During the GFC M REITs were one of the most resilient asset classes in the region as we had the benefit of a sound banking system that enabled all REITs to ride the storm successfully without resorting to dilutive capital raising exercises which destroyed shareholder value over the longer term.

There are some areas we are not as competitive for example we dont enjoy a zero withholding tax for individual unitholders like Singapore does. This is a feature we would like to see happen as it would encourage pensioners to place their funds in REITs for steady returns. Lieu Ching Foo: What is M-REIT advantage compared to direct commercial property investment? (especially with Budget 2013 increasing RPGT, but the 10% withholding tax for REIT since 2008 has been extended to Dec 2016 since Budget 2012) Stewart LaBrooy: Purchasing REIT stock is the same as owning direct property but it not an investment for speculators but rather long term ownership of assets. The big difference is that for the long term investor we take out the business risks in investing in direct property and provide them with a portfolio that carries a much lower risks

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profile. For example at Axis-REIT we have a diverse portfolio of 32 properties so it lowers the risk if there is tenant leaving. Unitholders also enjoy all the advantages of direct property ownership in that when assets are disposed of by the REIT, the capital gains are returned to them tax free. However when we own properties to rent individually that income is subjected to a 25% corporate tax (REITs only pay 10%). Lieu Ching Foo: What is the advantage of REIT stocks compared to company stocks? Stewart LaBrooy: REITs are a different asset class with a high certainty of dividend payouts (Minimum 90% of net profit before tax) and this is done every quarter or half yearly. There are also much higher requirements in corporate governance when compared to listed companies who can be controlled by owning a 32% share of the stock. In REITs the manager is appointed and all assets are held in trust by the Trustee. The manager is normally the promoter of the REIT at listing but they can be removed if they do not perform and they cannot vote in any Related Party Transaction. Its a highly transparent industry.

Lieu Ching Foo: What is the current sentiment of local and foreign institutional investors in M-REIT? As in, are they buying/holding/selling? Stewart LaBrooy: In response to the financial crisis of 2008-2009, investors have questioned some of the underlying assumptions of modern portfolio theory. In particular, investors have observed negative investment returns of greater magnitude and higher frequency than those implied by the normal statistical distribution of investment returns on which most asset allocation models typically rely. Thats basically the equivalent of having a hundred year storm every 10 years.

That real estate should be a steady part of the diet. Optimized portfolios may seem counterintuitive given the volatility of real estate during the financial crisis. However, the high and steady dividends distributed by REITs yearin and year-out play a large role in the total return of REITs. Returning to the Lost Decade, when the S&P 500 Index posted its compound annual total return of negative 0.95 percent, it is noteworthy that the FTSE NAREIT All Equity REITs Index delivered a compound annual total return of positive 10.63 percent.

Dividends are important! Research reveals that the relatively high and stable dividends of REITs have provided investors with appreciably higher total returns when compared with other equities. Because REITs are required to distribute annually to their shareholders at least 90 percent of their taxable income in the form of dividends, approximately 56 % of the total return from U.S. REITs over the period December 1989 December 2010 came from dividends, compared with only 23 percent of the total return from companies in the S&P 500 Index.

With the current volatility in the equity markets I believe M REITs have found a sweet spot with the investors (both foreign and local). What we see here is an unprecedented listing of the Crown Jewels of properties Pavilion, Sunway Pyramid, MegaMall and perhaps the KLCC as well. This has enabled all investors to participate in the ownership of the best properties in Malaysia. The current trend is to buy and hold on to M REIT stock and in this flight safety we have witnessed an unprecedented compression in yields across the board. MREITs now trade at

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premiums of 150-300 basis points above the 10 year MGS rate as compared to Singapore where the premiums are more like 400-600 basis points. The REIT managers in Malaysia have displayed a strong sense of commitment to their shareholders in providing growing dividends and increasing values to their shareholders. Such transparent behavior will set a good example to other REIT markets. Lieu Ching Foo: On Axis REIT what is the rationale for REIT manager to opt for private placements over public placement (rights issue)? Stewart LaBrooy: The private placement route is much quicker way of raising capital and the discounts given tend to be small (3-5%) as compared to rights issues where the discounts can be as high as 20% and is highly dilutive. In addition it is our experience that a rights issue can take up to 6-12 months and the pricing is subject to market forces in that period. A placement can be completed in 2-3 months with tight pricing.

Lieu Ching Foo: Going forward to 2013, what is the outlook (briefly) of the following REIT assets type: Stewart LaBrooy: a) Retail Still showing good growth prospects in rents but hard to grow the portfolio due to limited stock in the market. b) Office- with 25 million sq. ft. coming on stream in the next two years and absorption of three million sq. ft. a year an oversupply is looming. Rents could soften. c) Hotels/hospitality- limited quality buy opportunities but room rents are increasing. d) Industrial- steady with ample buy opportunities. Rents are increasing due to limited new supply coming onto the market. Johors industrial sector is booming. e) Plantation (Al-Hadharah Boustead) a lot will depend on the pricing of palm oil internationally. Its growth is linked to the climate conditions and pricing- a very difficult call short term. However it does have the feature of being a large land bank with a steady dividend return and with commodities becoming a favoured asset class it does have a long term upside.

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