PETALING JAYA: Despite the work-from-home or alternate work-at-office arrangements by many companies, selected office real estate investment trusts (REITs) are set to benefit from a higher demand for space due to the need for physical distancing in the “new normal”.
UOB Kay Hian said it does not foresee office sizes being scaled down in the future, although there is an oversupply now.
“In fact, we are of the view that the office segment will benefit from the change in the working environment (amid) Covid-19, particularly with physical distancing that requires at least 1.8-metre distancing.
“Office REITs under our coverage are seeing more enquiries for office space, which leads us to believe that potentially better earnings will continue in the coming quarters, ” it said in a report yesterday.
With the low interest rate environment currently, the research house said Malaysian REITs still command attractive yields than fixed-income instruments.
“In the short run, office REITs are less impacted by the Covid-19 outbreak. In the long run, we continue to prefer the retail segment, particularly in prime/niche malls for their proven business resilience. We opine the market has priced in the Covid-19 risks, given that the Kuala Lumpur REIT Index has declined 19% to its low in March and has since recovered 8% currently.”
Based on channel checks, UOB Kay Hian said selected offices have garnered more enquiries after the movement control order as businesses observe physical distancing.
“Separately, we note that some owners have started to market their buildings as Covid-19-secure office’ with features such as single direction flows, minimum six-feet physical distancing in the office, sensor-automated facilities in washrooms as well as installation of desk partitions.
“We understand that co-working space has also seen a modest improvement in occupancy rate, as smaller businesses tend to take up more office space for a shorter period.”
Meanwhile, CGS-CIMB said it was positive on Sunway REIT’s The Pinnacle Sunway office tower.
“We remain positive on the RM450mil acquisition of The Pinnacle Sunway due to the asset growth angle, but the estimated dilution of the 2021 to 2022F earnings per share (EPS) and dividends per share (DPS) from the placement deal may cap further upside to share price.
“Our estimates of a net impact of 4% to 8% dilution to 2021 to 2022 EPS and DPS and up to 4.7% dilution to target price from the acquisition and placement deals are intact.
“There is also downside risk to our unchanged DPS forecasts should the group declare dividend from 2021 at the minimum 90% payout ratio, on account of a more aggressive cash conservation stance compared with our forecast payout ratio of 94%.”
Besides the Pinnace deal, CGS-CIMB said Sunway REIT foresees lucrative opportunities in the non traditional logistics/e-commerce space. “Timing-wise, the group indicated previously that it was looking to potentially strike another new asset acquisition deal over the next 12 to 18 months.”
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