PETALING JAYA: Malaysian real estate investment trusts (REITs) delivered first quarter ended March 31, 2025 (1Q25) financial results that were in line with expectations, but softer consumer spending and the expansion of the sales and service tax (SST) may weigh on them in the second half of 2025 (2H25).
CIMB Research said all REITs under its coverage – Axis–REIT, Al-Aqar–REIT, IGB-REIT, Sentral-REIT and Sunway-REIT – reported 1Q25 financial results that were in line with expectations, with core net profit growth of 13.3% year-on-year (y-o-y) and 14.2% quarter-on-quarter on an aggregate basis.
It said active capital management initiatives were a key driver in the y-o-y earnings growth achieved by Axis-REIT, Sunway-REIT, and IGB-REIT.
In contrast, the earnings decline at Sentral-REIT and Al-Aqar was mainly due to the loss of rental income.
It has maintained a “neutral” call on REITs, with the top pick being Axis-REIT for its highest potential upside to target price as well as distribution yields of 5.2% to 5.8% for the financial year ending Dec 31, 2025 (FY25) to FY27.
“In FY24, Axis REIT acquired eight properties for a total consideration of RM719mil, which we estimate contributed 14% to its 1Q25 revenue,” it added.
The research house said there were signs of softening consumer spending, as reflected in weaker tenancy sales among retail REITs under its coverage.
Sales per sq ft at Sunway-REIT declined 0.4% y-o-y, while IGB-REIT’s Mid Valley Megamall recorded a 2% drop in gross monthly income per sq ft.
“This softness emerged despite the festive period falling within 1Q25 and the completion of refurbishment works at both Sunway Pyramid Mall and Mid Valley Megamall’s anchor tenant spaces, where outgoing anchor tenants were replaced with a more diversified and higher-yielding tenant mix,” it said.
Noting that headwinds were expected for REITs going into 2H25, it said the SST expansion that includes rental services would raise tenant operating costs and limit REITs’ rental reversion potential, while also impacting consumer sentiment.
A potential increase in electricity tariff would be another hurdle.
“We estimate that the current 12-month forward distribution yield spread against the 10-year Malaysian Government Securities stands at 1.9%, which is marginally above the 10-year historical average of 1.8%,” it said.
