AMINVESTMENT Bank Research has maintained its neutral call on the property and real estate investment trust (REIT) sector as the overall sentiment remains weak due to Covid-19 pandemic which has caused a major upheaval in the global economy.
“We may upgrade our neutral stance for the REIT sector to overweight if there is a strong economic recovery, consumer sentiment is to improve significantly and Malaysia’s tourism industry stages a strong rebound.
“Our valuation methodology is based on a 5% target yield over CY21F distribution,” said the research house in a note on April 30.
It also maintained its buy recommendation on Sunway REIT (SREIT) with fair value (FV) of RM1.81 and YTL Hospitality REIT with FV of RM1.31.
With earnings under pressure, AmInvest said, retail REIT managers are adopting a proactive stance in supporting their tenants through this difficult time.
“We believe REIT managers will make adjustments in rental rates across the board in order to retain their tenants, resulting in a negative impact to their bottom lines and distribution to unitholders.
Based on the previous sector reports dated March 19, 2020 and 9 April 9, 2020, the research house has reduced the REITs’ FY20-FY21 earnings forecasts by more than 20% respectively to reflect the impact of the movement control order and its spillover effects to the economy which may result in lower rental income.
“Nonetheless, after assessing the current global economic condition, we are cutting our FY20F-FY21F earnings further,” it said.
The research house also noted that the essential goods and services take up about 15%-20% of shopping malls’ total net lettable area. However, their businesses are affected as well due to the thin crowds.
“Meanwhile, post-MCO, we believe shopping malls patrons and the occupancy of hotels will remain low due to the risk of Covid-19 infection, and we expect this situation to continue for six to eight months.
“We reckon industrial REITs will be negatively impacted as well due to lack of economic activities amid the upcoming global recession.” – April 30, 2020
