Analysts see REITs as a safe yet unexciting choice

Analysts believe that real estate investment trusts (REITs) are a safe choice albeit unexciting, given that their latest quarterly results were in line with expectations.

Of the six REIT stocks under the coverage of MIDF Research, only the earnings of KLCC REIT came in above expectations, while the rest posted earnings that are within expectations, reported The Borneo Post.

MIDF Research said the operating expenses of KLCC fell unexpectedly by three percent year-on-year to RM160 million potentially due to cost saving measures introduced in its hotel division.

The five REIT stocks with earnings that matched expectations were Capitamalls Malaysia Trust (CMMT), Axis REIT (AXREIT), Pavilion REIT (PAVREIT), Sunway REIT (SUNREIT) and IGB REIT (IGBREIT).

Overall, the six REIT stocks under the coverage of MIDF Research saw their average distribution per unit (DPU) increase by 4.7 percent year-on-year.

“IGBREIT registered the strongest DPU growth of 11 per cent year-on-year,” said the research arm.

The superior DPU growth was in line with a 8 percent reduction in its operating expenses due to lower reimbursement and utilities costs.

Commenting on interest rates, the research house expects the central bank to maintain the overnight policy rate at 3.25 percent for the rest of 2015.

“This should keep financing cost stable for all REIT players,” it said.

Moreover, MIDF Research expect the sluggish consumer sentiment to continue with cautious approach given the implementation of the goods and services tax (GST) and the weak ringgit.

It noted that this may affect REITs with exposure to shopping malls (KLCC, IGBREIT, PAVREIT, SUNREIT and CMMT) as rental reversion growth corresponds with the business revenue of tenants.

“Meanwhile, REITs with office exposure (AXREIT and SUNREIT) may face increased competition due to the influx of new office space,” it said.

Notably, MIDF Research expects an additional supply of 5.9 million sq ft to enter the market by end 2015.



Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email

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