PETALING JAYA: Malaysian real estate investment trusts (M-REITs) remain relatively insulated from the Middle East conflict and this is underpinned by their domestic-centric earnings profile, says RHB Research.
The brokerage has maintained an “overweight” call on the eight M-REITs it covers, noting that recent checks with management teams of REITs under its coverage revealed that fundamentals should remain intact, with no major change in the near-term outlook.yield
“M-REITs remain one of the more defensible sectors in a scenario of prolonged global geopolitical tensions – supported by stable income streams, domestic-centric exposure, and limited direct sensitivity to energy price shocks.
“In a more volatile market environment, REITs continue to offer an attractive yield proposition. This is underpinned by resilient cash flows and strong distribution visibility, given their high mandatory payout structure,” it said.
It expects near-term sector fundamentals to remain intact, supported by high occupancy levels and stable rental reversions.
The Bursa Malaysia REIT Index (KLRE) dividend yield has expanded by 50 basis points (bps) year-to-date to 5.5%, largely driven by valuation deratings due to the expiry of the withholding tax (WHT) concession.
It said the sell-off following the expiry of the WHT concession has also led to the dividend spread between the KLRE and the 10-year Malaysian Government Securities widening to around 190 bps.
It believes the overhang from the WHT change has been resolved and the KLRE’s derating has more than compensated for the WHT removal. M-REIT yields have risen by 10%, broadly offsetting the anticipated 50 bps to 100 bps initial compression in net yields.
“We view the wider spread as a more attractive accumulation window, given no major change to the underlying sector fundamentals, it said, pointing to AME-REIT as the top pick on a “buy” call and target price of RM1.95. It picks IGB-REIT as better placed to weather any shift in tourist flows versus Pavilion-REIT, with high tourist and high variable turnover rent exposure.
