PETALING JAYA: Real estate investment trusts (REITs) are expected to participate in greenfield and brownfield projects more actively to further add value to their portfolios, according to MIDF Research.
The research house said the recently revised guidelines for REITs, by the Securities Commission, were among the factors that would spur participation in development projects going forward.
“Recall that the revised guidelines, since the previous version released on Dec 28, 2012, now allows for REITs to undertake property development activities that caps the investment value at 15% of the REIT’s total asset value.
“We believe that this revision provides an additional option for REITs to seek yield accretive investments on top of purchasing and refurbishing properties,” the research house said in a note.
MIDF Research noted that Axis REIT has handed over Axis Mega Distribution Centre to Nestle and is now working on the Axis Aerotech Center@Subang with a development cost of RM74.2mil, expected to be completed by the fourth quarter of this year.
Sunway REIT, meanwhile, is expanding Sunway Carnival’s net lettable area (NLA) by 330,000 sq ft or 66% over three years, with the completion of the RM353mil development expected in the third quarter of 2021.
In August, Pavilion REIT announced that it was invited by MALTON BHD to participate in the on-going development of Pavilion Bukit Jalil.
The research house, however, maintained its “neutral” stance on the REITs sector due to the lack of near-term catalysts.
Its top pick for the sector is Sunway REIT due to its positive earnings outlook.
“We believe its retail division will continue to spur earnings growth going forward while the office segment may rebound from its previous low,” it said.
It also has a “buy” call on AmanahRaya REIT for its diversified assets base with exposure to education, property and an attractive dividend yield of 6.5%.
It also increased its target price for Pavilion REIT from RM1.40 to RM1.60 assuming higher rental income going forward.
For the second quarter of the year, six out of the seven REITs under MIDF Research’s coverage saw core net income (CNI) come in in-line with its full year forecasts.
Among them, Pavilion REIT’s CNI for the quarter was slightly above expectations due to higher than expected rental income.
Five REITs registered positive CNI growth except for KLCCP, which was flat, and CAPITALAND MALAYSIA MALL TRUST, which was down 16.0% year-on-year.