PETALING JAYA: The fundamentals underpinning domestic real estate investment trusts (REITs) appear to be intact despite the Bursa Malaysia REIT Index (KLREI) having underperformed the broader market, says RHB Research.
The brokerage has maintained an “overweight” rating on the eight Malaysian REITs it covers, with the top picks being Axis-REIT and Pavilion-REIT, both with “buy” calls.
Axis-REIT has a target price (TP) of RM2.42 with strengths as the country’s largest industrial REIT, quality tenant base, visible acquisition pipeline, and better liquidity profile.
Pavilion-REIT, with a TP of RM2.18, has exposure to prime retail assets, improving contributions from Pavilion Bukit Jalil, and incremental earnings from hotel assets.
The research house said Malaysian REITs remain compelling for investors looking for yield plays.
This is given their stable earnings and dividend outlook as well as undemanding valuations.
Currently, the yield spread between KLREI and 10-year Malaysian Government Securities stands at around 200 basis points.
“All eight REITs under our coverage chalked results that met expectations,” it said, referring to the recent first-quarter ended March 31, 2026 results season.
Fundamentals remained intact supported by high occupancy levels and stable rental reversions.
Borrowing cost pressures remained contained, with the overnight policy rate projected to remain at 2.75% this year, which would also help support asset acquisition activities.
It cautioned that while consumer spending remained resilient, rising 6.3% year-on-year in April, 2026, sentiment could soften in the coming months, with tourist spending remaining uneven.
“That said, we believe prime malls with strong shopper catchments, high occupancy levels, and quality tenants should be better positioned to defend earnings,” it said, noting that any easing of Middle East tensions could support a stronger tourism recovery.
“In the office segment, sentiment remains weak but yields of around 8% to 9% offer some comfort for investors.
“In a market where demand drivers for office space have been lacking, we view assets connected to major transport hubs as more resilient,” it said.
“Meanwhile, industrial REITs should continue to benefit from structural demand drivers, supported by policy initiatives, long weighted average lease expiries and high occupancy levels, which provide long-term income visibility,” it added.
Additionally, an analyst said the outlook for the REITs sector in the remainder of 2026 was generally positive, adding however that it would likely vary across different property segments.
“The sector continues to benefit from a relatively supportive interest-rate environment and healthy occupancy rates in key assets,” he said.
