While any further outbreaks of Covid-19 might still cause bumps to the recovery of Malaysia’s REIT sector, earnings visibility has been improving following the encouraging development of vaccines with vaccinations already beginning in some countries. — Bernama photo
KUCHING: Malaysia’s real estate investment trusts (REITs) has been projected to be on a recovery path for the next 12 to 18 months, particularly IGB REIT and Sunway REIT.
In AmInvestment Bank Bhd’s (AmInvestment Bank) view, the worst is over for REITs.
“For the next 12 to 18 months, REITs will be broadly on its recovery path as consumers spending and footfall recover,” the research firm said in its sector report.
“While we are aware that any further outbreaks of Covid-19 might still cause bumps to the recovery, earnings visibility has been improving following the encouraging development of vaccines with vaccinations already beginning in some countries.”
“We believe the REITs under our coverage will stage a firm recovery post-pandemic, especially once international travel is allowed.
“This is mainly due to their strong market position and brand name, as well as the strategic location in the heart of the city, which give them the advantage of being the “chosen malls” over the neighbourhood malls.
According to AmInvestment Bank, retailers are also consolidating their physical footprint (with some focusing more on online expansion while others embark on
costs rationalisation after a falloff from oversupply of retail spaces).
The research firm highlighted that this can be seen from the REITs’ strong occupancy rates of over 90 per cent in their anchoring malls even during the MCO period.
“The wide tenants mix also provided a better shopping experience to consumers, making the malls the primary go-to shopping places within the adjacent community (as compared to some other smaller neighbourhood malls),
especially when the entertainments are allowed to resume operations.”
Among the four REITs under its coverage, AmInvestment Bank anticipated that IGB REIT and Sunway REIT are primed to lead the recovery, underpinned by its resilient local footfall (supported by the well-connected adjacent community, that is, residences, offices, universities) and good customer profile (that is, mass affluent, which are more likely to spend during an economic recovery).
While AmInvestment Bank believed Pavilion REIT and YTL REIT will face more challenges in their recovery due to the greater reliance on tourists traffic, the research firm remained positive on their long-term outlook as it believed the rebound in footfall will be strong once the travel ban is lifted.
“Based on our estimates, REITs under our coverage provide distribution yields of more than 4.5 per cent for financial year 2021 (FY21) and beyond compared to the current low interest environment rate.
“We like the sector as a recovery play sector, which we believe is poised to benefit from the growth in Malaysia’s economy post-pandemic.
“Our top picks for the sector are IGB REIT and Sunway REIT.”