PETALING JAYA: The outlook for Malaysia’s real estate investment trust (REIT) sector remains positive despite recent market weakness, with MBSB Research viewing the selloff as a buying opportunity for investors seeking stable income and defensive earnings.
The research house maintained its “positive” stance on the sector, saying REIT fundamentals remain intact as earnings continue to be supported by healthy rental reversions, resilient consumer spending and active asset acquisitions.
It said the recent decline in the KL REIT Index was largely sentiment-driven following the expiry of the withholding tax concession for REIT distributions, coupled with concerns over higher global interest rates.
“We view the recent weakness in the KL REIT Index as a buying opportunity, as REIT yields remain attractive and the sector continues to offer defensive earnings and stable income streams,” it said.
An analyst told Starbiz that first-quarter 2026 earnings were largely within expectations, reinforcing confidence that the sector remains on a firm footing. He said retail REITs emerged as the standout performers, benefitting from stronger consumer spending during the Chinese New Year and Hari Raya Aidilfitri festive periods.
IGB-REIT posted the strongest earnings growth, with core net income rising 51.9% year-on-year, translating into earnings per share growth of 27.1%, aided by festive spending and contributions from the newly acquired Mid Valley Southkey Mall.
Sunway-REIT delivered the second-fastest earnings growth of 10%, driven mainly by its retail division, while Pavilion-REIT recorded a 17% increase in earnings as contributions improved across all its malls, alongside income from Banyan Tree Kuala Lumpur and Pavilion Hotel Kuala Lumpur.
Meanwhile, Axis-REIT reported marginally weaker earnings due to higher administrative expenses, although MBSB Research expects its medium-term outlook to remain supported by positive rental reversions for industrial assets and continued acquisitions.
The brokerage expects retail REITs to remain the key earnings driver as Malaysia’s consumer spending continues to expand. Although inflationary pressures could moderate spending growth, it believes retail sales will continue expanding, supporting rental renewals.
“Retail REITs generally achieved positive mid-single-digit rental reversions in 2025, and we expect a similar trend to persist in 2026. Overall, we anticipate continued earnings growth for retail REITs, underpinned by stable consumer spending.”
MBSB Research continues to favour Pavilion-REIT, citing positive rental reversions at Pavilion Kuala Lumpur and Pavilion Bukit Jalil, alongside an estimated gross distribution yield of 5.9%.
It also retained its “buy” call on Axis REIT, supported by industrial rental growth and acquisition-led expansion.
Sunway-REIT was upgraded to “buy” after its recent share price weakness lifted its prospective gross yield to 6.1%.
