PETALING JAYA: The industrial real estate investment trust (REIT) segment is expected to be the least affected by the current lockdown, as most manufacturing businesses have been allowed to operate.
Kenanga Research in a report yesterday said the industrial REIT segment remained a safe haven, as businesses within the industrial sector have been faring well.
“Axis REIT is the only industrial REIT that has no force majeure clause, implying that all of its circa 150 tenancies have no legal ground to ask for discounts or rebates. However, the group was willing to consider rental deferment on a case-to-case basis for struggling tenants.
“However, the percentage of rental deferment, even during the peak of the pandemic during the March-to-May 2020 movement control order phase, was minimal.”
The research house said it favoured Axis REIT for its robust resilience during the pandemic. “The group is possibly the only REIT under our coverage confident of positive reversions and downsides are limited with minimal expiries at 18%.
“Fundamentally, the group is actively acquiring numerous bite-sized industrial assets, targeting RM135mil for now, supported by its low gearing of 0.33 times which could potentially accrete up to 5% additional earnings in its financial year 2021.”
Separately, Kenanga Research said the office segment will continue to remain stable, as tenants have resumed working at offices or have the option to utilise work-from-home arrangement, thus ensuring business continuity.
On the prospects of the REIT industry in general, Kenanga Research said it was optimistic of better days ahead. “The government appears resolute in getting the country’s economy back and running again. The national vaccination programme will be picking up pace as mentioned in the Pemulih package announced on June 28.
“One of the main focus of the package is to increase the rate of vaccinations from the current 200, 000 per day. As of June 26, 6% of the population had received both doses of the vaccine.
“If the country maintains the current rate of vaccination, at least 80% of the population would be able to get their first dose by September and subsequently, their second dose by December.”
Barring any hiccups from the new Delta variant, Kenanga Research believes that adhering to standard operating procedures post-vaccination should suffice in combating the pandemic. “As such, we believe that the sector will bounce back in 2022, ” it said.
Separately, Kenanga Research said it expects the 10-year Malaysian Government Securities (MGS) to maintain its upward trajectory towards year-end, given the opening up of economies and recovery post Covid-19. “To date, the MGS has already risen by 27% from 2.58% to 3.3% currently.
“We prefer to remain conservative on MGS targets, increasing it to 3.6% in light of the Covid-19 situation improving towards year-end and a steepening yield curve. All in, we lower REITs target prices by 4% to 11% on a higher MGS target.” The MGS comprises marketable debt instruments that are issued by the Malaysian government to raise funds from the domestic capital market.