PETALING JAYA: The real estate investment trusts (REITs) sector is on a growth trajectory owing to e-commerce growth and the current low interest rates.
Many economists are of the view that based on the current economic situation, the key benchmark interest rate will be maintained at 1.75% for the year.
As e-commerce has been charting strong growth amid the pandemic, the prospects of the sector is promising, with office and industrial REITs to remain resilient.
Hong Leong Investment Bank (HLIB) research said for industrial REITs, the segment has been steady all along, backed by exceptional growth of the e-commerce sector that was seen during the pandemic.
“We observed that as online shopping becomes the new norm, it has created a strong tailwind for warehousing and logistics companies.
Hence, we believe industrial REITs will continue its stability and growth trajectory in 2021. “Our economics team expects Bank Negara to maintain overnight policy rate (OPR) at 1.75% for the rest of 2021.
Although we do not feel the hotel segment will recover radically in the near term, we reckon the current low level of OPR would be favourable for REITs.
“This will give REITs the advantage of having lower borrowing costs for future acquisitions, ” it added. Besides this, there has also been progressive improvement in the retail and hotel segments, it added.
When inter-state borders eventually reopen, HLIB expects a gradual respite from domestic holiday-goers as well as business travelers. This should aid recovery in occupancy for hotels.
“With the government allowing interstate travel activities between recovery movement control order (RMCO) states (March 10), hotel occupancy rates were seen to increase to 33% from the lower rates in Jan (20%) and Feb (18%).
“We also foresee continuous improvement in the retail segment aided by relaxation of restrictions and pent-up local demand backed by “revenge spending” and the upcoming Hari Raya festive season.
“This former effect was witnessed during last year’s RMCO (June 10 to Oct 12), as its current footfall of malls have recovered close to RMCO levels, based on HLIB channel checks.
“Moreover, the continuation of 10% electricity tariff rebate (till June 2021) would aid in reducing of operating costs, ” it said. While rental assistance would still be given to affected tenants, the research house said it understands the quantum is reducing.
Furthermore the national vaccination programme (which should gain significant traction in the second half of the year) would drive up overall sentiment as it progresses on the path to normalcy, ” it said.
HLIB is maintaining a “neutral” stance on the sector with its top pick being Axis REIT. It attributes this to the stock’s strong resiliency throughout the pandemic driven by increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also one of the few shariah compliant REITs.