PETALING JAYA: Malaysian real estate investment trusts (REITs) are expected to gain further traction in the sustainability space, with increasing potential for enhanced representation in the FTSE4Good Bursa Malaysia (F4GBM) Index in the coming review cycle this December.
This momentum reflects the sector’s growing alignment with environmental, social and governance (ESG) standards.
CIMB Research highlighted that Sunway Real Estate Investment Trust
(Sunway-REIT) is a strong contender for F4GBM Index inclusion by year-end.
“Our assessment indicates that Sunway-REIT is on track for potential inclusion in the F4GBM Index in December,” the research house said in a recent note.
In the June review, Sunway-REIT joined Axis-REIT and Capitaland Malaysia Trust (CLMT) in attaining ESG Grading Band 4 – the second-highest tier – marking the highest number of REITs achieving this level in the last six cycles.
Despite this, Sunway-REIT was not added to the index at that point as it was not a constituent of the FTSE Bursa Malaysia Emas Index as of end-May due to previously low liquidity.
However, a turnaround in liquidity saw Sunway-REIT re-enter the FBM Emas Index following the June semi-annual review, paving the way for potential inclusion in the December F4GBM Index review.
CIMB Research recommended “hold” on Sunway-REIT with a target price of RM2.11.
According to the research house, “Only companies that are constituents of the FBM Emas Index as of the end of May are eligible for consideration in the June F4GBM Index review, while companies added thereafter are only eligible in the December review.”
The REIT sector’s weightage in the F4GBM Index has risen to 1.7% from 1.1% last December, following the inclusion of 19 new companies in the update last month.
Among these were CLMT, KIP-REIT and YTL Hospitality-REIT, bringing the total number of REIT constituents to seven out of 160.
“To qualify for inclusion in the F4GBM Index, companies must achieve a minimum ESG score of 2.9 out of five,” CIMB Research noted.
Based on its analysis, CLMT likely qualified due to liquidity, while YTL-REIT and KIP-REIT earned their spots through improved ESG performance.
Still, five of the 10 largest REITs by market capitalisation – which represent 93% of the sector’s total market capitalisation – remain absent from the index, including KLCC-REIT and IGB Commercial-REIT, mainly due to liquidity issues.
Al-Aqar Healthcare-REIT was excluded for failing to meet the minimum ESG score.
“Overall, we are positive on the gradual progress made by REIT players in enhancing their ESG practices, as reflected by the increasing number of constituents in the F4GBM Index,” CIMB Research stated.
The research house emphasised that further ESG gains lie within the environmental pillar, particularly in reducing carbon emissions and boosting energy efficiency.
“A key area for improvement is the reduction of carbon emissions through greater adoption of renewable energy or improving energy efficiency,” it said.
REITs were encouraged to consider subscribing to Tenaga Nasional Bhd’s Green Electricity Tariff programme, which was revised this month to offer a more accessible flat rate of five sen per kilowatt-hour.
KIP-REIT was singled out for retrofitting efforts across seven malls through a performance-based partnership that is expected to deliver energy savings of 15%.
“Sustainability-linked financing embeds pre-agreed sustainability performance targets into financing terms, directly linking borrowing costs to the achievement of ESG outcomes,” CIMB Research added, citing Sunway-REIT’s RM3.4mil in savings from 2021 to 2023 as an example.
With tenants increasingly favouring green-certified spaces and cost-effective financing tied to sustainability metrics, Malaysian REITs are positioned to benefit from continued ESG integration in the long term.
