KUALA LUMPUR: Maybank Investment Bank Research is keeping YTL REIT as its top Buy due to its resilient earnings from its Malaysian and Japanese assets, which are on master leases with rental step-ups.
In its research note issued on Friday it said there are also growth catalysts from its three Australian hotels – potentially resulting in higher occupancy rates and/or room rates post refurbishments.
“We also like YTLREIT for its strong pipeline of hotel assets from its parent, ” it said.
Maybank Research anticipated major pipelines to be limited in 2020, hence it continues to favour M-REITs with prime malls and sizeable assets with long-term tenants which would underpin organic growth.
“We maintain a Neutral view on the sector due lack of major growth catalysts at this juncture. Our top Buy is YTLREIT and our other Buys are SunREIT and MQREIT. The sector’s average CY20/21E net yields are 5.4/5.6%, ” it said.
The research house estimated M-REITs’ growths to be largely organic in 2020, via positive rental reversions and sustained occupancy rates while there are M-REITs that would record full-year rental income contributions from assets acquired in 2019 (i.e. Axis, SunREIT, ALSREIT).
The oversupply of retail and office space in the Klang Valley (where most of the M-REITs’ key assets are located in) would remain a major challenge.
“Meanwhile, we expect direct earnings lift to M-REITs to be minimal from easing of financing costs of variable rate debts. Our economist forecasts the OPR will be cut by 25bps to 2.75% in 2020.
“We expect 2020’s acquisition pipeline to remain subdued for now, only involving smaller size assets as major deals and developments are unlikely until 2021 onwards, such as Lot 185, Lot 91, and City Point Podium by KLCCP and expected completion of Phase 2 development at Axis Mega Distribution Centre.
“Our 2020 forecasts have only imputed Axis’ RM439m worth of industrial property development/acquisitions. Beyond the near term, YTLREIT, SunREIT and Axis are our preferred picks for acquisition-play, ” Maybank Research said.
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