M-REITs expected to see a rebound in earnings

Overall, CGS-CIMB Research remained “neutral” on M-REITs. It recommends “add” for Axis REIT, IGB REIT and Sentral REIT.

PETALING JAYA: Malaysian real estate investment trusts (M-REITs) are expected to see a rebound in earnings this year, as the rollout of Covid-19 vaccines helps drive economic activities.

CGS-CIMB Research is projecting a core net profit growth of 10% year-on-year (y-o-y) for the sector in 2021,6.9% y-o-y for 2022 and 10.7% y-o-y for 2023 on improving net property income margin and phasing out of rental assistance.

The brokerage also expects the sector average dividend yield to rise 5.3% in 2021 from 4.7% in 2020.

“Earnings risks for M-REITs under our coverage are easing, driven by the initiation of the nationwide Covid-19 vaccine rollout, relaxation of lockdown measures, improving consumer/retail sentiment and falling daily Covid-19 cases, of late, ” CGS-CIMB Research said in its report yesterday.

“We anticipate rental assistance/rebates to be minimal and gradually phase out in the coming months as both essential and non-essential retailers observe potentially improving retail sales versus 2020, ” it added, noting that average rental reversion should skew to the negative in 2021 as mall owners’ tenant retention strategy remained intact.

Overall, CGS-CIMB Research remained “neutral” on M-REITs. It recommends “add” for Axis REIT, IGB REIT and Sentral REIT.

IGB's Mid Valley MegamallIGB's Mid Valley Megamall

The brokerage liked Axis REIT for its industrial/warehousing plus mergers and acquisitions story; IGB REIT for being an early beneficiary of Covid-19 vaccine rollout; and Sentral REIT for its attractive dividend yield, estimated at 7.1% for 2021.

“We remain positive on M-REITs with larger exposure to flagship retail malls (high occupancy), and dominant exposure to the industrial/warehousing assets with growth strategies and high dividend yields, ” CGS-CIMB Research explained.

“This overall view is mitigated by our cautious stance on the recovery pace for the retail and hotel sectors, ” it added.

Of the seven M-REITs under CGS-CIMB Research’s coverage, four posted results that were above its expectations. These were Axis REIT, CapitaLand Malaysia Mall Trust (CMMT), IGB REIT and Sentral REIT.

Two were in line, namely KLCCP Stapled Group and Pavilion REIT, while Sunway REIT was the only one that came in below the brokerage’s expectations.

“M-REITs under our coverage reported a 13.4% y-o-y contraction in 2020 revenue, with the largest decline recorded by retail REIT, due mainly to the estimated RM34mil to RM94mil in total rental assistance/rebates, ” CGS-CIMB Research said.

“Diversified REITs’ revenue performance was weighed by a steep fall in hotel revenue due to subdued average occupancy rates of 20%-25% at end-2020, ” it added.

In 2020, retail Reits took the biggest hit from negative asset revaluation with Axis Reit bucking the trend with a revaluation gain. The impact of negative asset revaluation was greater for malls located in the Klang Valley – mainly for CMMT.

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M-REITs , IGB , Axis , Covid-19 , CapitaLand , Malaysia Mall Trust ,


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