PETALING JAYA: The outlook for local real estate investment trusts (REITs) is expected to remain muted in the second quarter of this year, weighed by the impact of the Covid-19 pandemic.
Maybank Investment Bank Research (Maybank IB) in a note said it remained “neutral” on the sector, adding however that there are selected growth catalysts such as its forecast decent distribution per unit yield of 4.9% and 6% in 2020 and 2021, respectively.
“Meanwhile, its net yield spread has also widened, which increases the appeal of the sector.”
The research house said it expected occupancy risks at malls and offices to remain, particularly in the Klang Valley.
“This is attributed to the ongoing oversupply of retail and office space in the Klang Valley and amplified by the adverse impact coming from Malaysia’s movement control order and the Covid-19 pandemic.
“We maintain our expectation for malls’ near-term earnings (particularly in the second quarter of 2020) to be significantly impacted due to weak consumer spending and lower rental income (via rental support, lower turnover rent and softer or negative rental reversion).”
Citing the National Property Information Centre’s recent statistics, Maybank IB said first quarter 2020 year-on-year occupancies were flattish/softer in Kuala Lumpur and Selangor.
“Shopping complex occupancies in Kuala Lumpur and Selangor were 82.6% and 81.8% respectively and office occupancies were at 78.3% and 72%. Medium-term incoming supplies are 12.6 million sq ft of shopping complex (17.4% of existing supplies) and 17.9 million sq ft of office space (12.6%) aggregate of Kuala Lumpur and Selangor.”
Maybank IB said it remained cautious on the oversupply of retail and office space in the Klang Valley, which could exert pressure on occupancy rates and positive rental reversions; and in turn, increase the downside risks to distribution per units.
“Elsewhere, we believe any overnight policy rate hike would lower Malaysian REIT’s profitability (higher finance costs) and deter acquisitions (more expensive to fund acquisitions via borrowings).”
Maybank IB said YTL REIT is still its top buy.
“We believe the near-term negatives from its Australian portfolio are mostly priced in. Notwithstanding that, earnings prospects are still backed by its stable master lease properties in Malaysia and Japan, and a strong asset pipeline from its parent.
“YTL REIT’s total return is 30%. Our other buys are Sunway REIT and MRCB-Quill REIT, ” it said.