PETALING JAYA: Real estate investment trusts (REITs) in the retail and hospitality segments are expected to have a more favourable year in 2025.
According to Maybank Investment Bank (Maybank IB) Research, industrial asset REITs are projected to remain in a sweet spot due to high demand.
However, capitalisation rates are expected to decline due to competition.
The office segment, meanwhile, is likely to remain stable this year.
Elaborating further on retail and hospitality REITs, Maybank IB Research anticipates to see improved occupancy and rental reversions at key shopping malls in 2025.
This would benefit REITs in the mall space, especially IGB-REIT, Capitaland Malaysia Trust
(CLMT) and Sunway-REIT.
In addition, the expected recovery in tourism is expected to bode well for REITs with hotel exposures, namely KLCC-REIT, Sunway-REIT and Pavilion-REIT.
The continued influx of tourism to Japan and Australia would also be positive for YTL Hospitality-REIT.
“Collectively, we project 2025 earnings growth of 9.6% year-on-year (for Malaysian REITS), driven by sustained occupancy levels and rental rates, alongside several new asset injections.
“Besides that, we forecast an average 2025 net distribution per unit (DPU) yield of 5.9% (2024: 5.3%).
“Our top ‘buy’ is CLMT, with other ‘buy’ calls on Pavilion-REIT, Axis-REIT and Sentral-REIT.”
On net one-year forward DPU yield, Maybank IB Research said there is a spread of 194 basis points over the 10-year Malaysian Government Securities (MGS) yield.
According to analysis form its fixed income research, the 10-year MGS yield is expected to remain stable at 3.8% to 3.9% in the first half of 2025.
This could ease slightly to 3.75% by the fourth quarter of 2025, from its current level of 3.8%.
In comparison, the average forward dividend yield for Malaysian REITs currently stands at 5.76%.
“The higher yield spread between REITs’ forward dividend yield and the 10-year MGS yield offers a better risk-reward prospect for Malaysian REITs.
“Separately, an expected stable overnight policy rate should offer temporary respite to financing costs,” according to Maybank IB Research.
The research house has maintained its “positive” outlook on Malaysian REITs for this year.
It further highlighted that REITs under its coverage saw several asset enhancement initiatives and new asset acquisitions for retail assets, hotels and industrial properties, which will support earnings growth in 2025.
CLMT has undergone a transformation following its acquisition of Queensbay Mall and its efforts to diversify into industrial assets.
Moving forward, CLMT’s earnings will be driven by high shopper traffic and strong occupancy rates at its prime malls, including Gurney Plaza, Queensbay Mall and East Coast Mall.
Maybank IB Research said the REIT offers an attractive dividend yield of 6.6% for the financial year of 2025.
