KUALA LUMPUR: Real estate investment trusts (REIT) remain a stronger defensive yield play in 2025 given the stable econonomic and rental growth outlook, says RHB Research.
According to the research firm, which has a "neutral" call on the sector, REITs have more inorganic growth prospects amid growing occupancy rates and normalised rental reversions, especially as interest rates have peaked.
"After being hit by higher electricity tariff and borrowing costs last year, we do not foresee any significant risk to costs in the near term.
"At the same time, rental reversions growth should also be normalised two years since the economic reopening, with most REITs’ management guiding for mid-single digit rental reversions," it said in a sector update.
Meanwhile, it said the improving tourism industry will drive retail spending for the malls under its coverage. For Suria KLCC and Pavilion Kuala Lumpur, RHB expects the increased spending to offset the competition from The Exchange TRX.
In the office segment, however, the outlook remains challenging due to the supply-demand imbalance.
It said Sentral REIT
(buy, TP: 92 sen) is attractive for its high dividend yield, with earnings supported by its stronger office assets especially following the acquisition of Menara CelcomDigi in December 2023.
RHB's top picks in the sector are Sunway REIT (buy, target price: RM1.77) and Axis REIT (buy, TP: RM2.09).
"We like Sunway REIT for its diverse property portfolio and active acquisition strategy.
"As for Axis REIT, it is our pick due to the resilient industrial subsector, and it should record a strong DPU growth in FY25 on the strength of new acquisitions made.
It added that the potential acquisition of Mid Valley Southkey mall makes IGB REIT (buy, TP: RM2.03) a wild card, especially given the high footfall to the mall during weekends due to the high spending power from travellers from Singapore.
It said the REIT also has a low gearing ratio that should easily fund the
acquisition.
Meanwhile, Kenanga Research, which also has a "neutral" recommendation on REITs said it does not expect yield seekers to return in a major way to REITs as Bank Negara is not expected to cut its current overnight policy rate this year.
Its top sector picks are KLCC REIT (outperform, TP: RM8) given its vibrant Surai KLCC mall back by the iconic Petronas Twin Tower and Pavilion REIT (outperform, TP: RM1.59), backed by the storng tenant portfolio of its malls.
However, Kenanga downgraded its calls for Capitaland Malaysia Trust (TP: 58 sen) to "underperform" from "market perform" and Sunway REIT (TP: RM1.65) to "market perform" from "outperform" as valuations have become rich after a run-up in their share prices.
