Evaluation of Price Determination Methods for Malaysian Islamic Real Estate Investment Trusts

Abstract

The Malaysian Securities Commission issued Guidelines on Islamic Real Estate Investment Trusts (Islamic REITs) in November 2005 which makes Malaysia a leader in developing Shariah‐compliant investment options particularly Shariah-compliant REITs. The aim of this research was to evaluate the price determination methods for Islamic Real Estate Investment Trusts (REITs) in Malaysia by using several share valuation methods, i.e. Dividend Discount Model (DDM), Net Asset Value (NAV) and Price Earnings Ratio (P/E Ratio). The study would provide an insight on the pricing of Malaysian Shariah compliant REITs namely Axis REIT and Al-Aqar Healthcare REIT. The data and information are retrieved from past 5 years annual reports. As a conclusion, valuation of REIT units is not an exact science. REIT share valuation is a highly subjective exercise by share analysts due to their professional judgements on both quantitative and qualitative aspects of a REIT. It is also a comprehensive process in that it cannot be possibly completed with just a few valuation tools. In theory, the more information an analyst has, the more he understands about the expected performance of the firm. Different methods will provide different insights on the pricing of REITs.