PETALNG JAYA: Malaysian real estate investment trusts (REITs) are looking attractive because of their growth strategies and are being seen as a reliable shelter for investors seeking defensive assets, analysts say.
RHB Research said strategies being taken by local REITs encompassed robust spending and inorganic growth.
“We think the pros outweigh the cons, especially with the expansion of the sales and service tax (SST)m which could potentially provide a downside risk to rental revisions. REITs with strong asset quality should be relatively shielded from it,” the research house said.
It noted that the current dividend yield spread between the Bursa Malaysia REIT Index and the 10-year Malaysia Government Securities (MGS10) was at 200 basis points from the historical mean.
The yield on MGS10 had eased roughly 38 basis points year-to-date alongside broadly lower bond yields globally, even as central banks in the region continue to cut interest rates.
“Bank Negara instituted its first 25 basis point cut to the overnight policy rate (OPR) since 2023, which we think will be supportive of domestic REITs as dividend yield plays,” said RHB Research.
It said it expected multiple REITs to record a bump in earnings from ongoing acquisitions and renovations.
AME-REIT is expected to complete RM148mil worth of acquisitions, and Axis-REIT should record healthy earnings growth from the RM644mil worth of acquisitions completed in the second half of last year.
It also said IGB-REIT’s ongoing acquisition of Mid Valley Southkey in Johor is a significant one as it allows the REIT to capture opportunities from the growing Iskandar Malaysia market.
Pavilion-REIT is also expected to complete the acquisition of the two hotels – Pavilion Hotel KL and Banyan Tree KL for RM480mil – which provides positive operating synergies with its flagship mall.
Sentral-REIT is expected to complete the acquisition of Arcoris Plaza for RM70mil as part of its strategy to diversify its asset mix.
“We also keeping an eye out for any disposal opportunities for the vacant Wisma Sentral Inai in Kuala Lumpur, which would help pare down Sentral-REIT’s borrowing costs,” the research house said.
“Finally, Sunway-REIT has completed the second phase of the refurbishment of Sunway Carnival Mall, which should result in a strong pickup in average rental rates.”
RHB Research said its top pick was Pavilion-REIT as it was expected to provide more attractive dividend yields compared with its closest peers, backed by its high occupancy rates which should provide solid earnings growth in the long term.
