MALAYSIA’S real estate investment trust (REIT) sector can expect to see a revival with a pick-up of retail footfall traffic recovery of up to 80%-110% of pre-COVID-19 levels.
Based on AmResearch’s channel checks, marketing activities such as promotional campaigns and exhibitions under REIT’s coverage have resumed to attract the return of consumers as the festive season approaches.
“However, the recovery is at a slower pace compared to last year partly due to the slower reopening of economies, as cases remain high at above 4,000 (daily) as compared to last year’s recovery movement control order (RMCO) period with daily active cases of below 1,000,” observed the research house in a REIT sector update.
The four REITs under AmResearch’s radar are Pavilion REIT, Sunway REIT and YTL REIT and IGB REIT.
“In terms of financial health, the REITs under our coverage continues to maintain a healthy debt-to-asset ratio of 23%-41% vs 60% of the regulatory threshold (temporarily raised from 50% up to Dec 31, 2022 by the Securities Commission as a COVID-19 relief measure) which allows the gearing up for further acquisitions,” noted the research house.
Moreover, most of the companies under AmResearch’s radar have guided that they are actively scouting for quality assets and do not rule out potential acquisitions over the next 12 to 18 months if any yield-accretive propositions emerge.
Such move will drive the REITs’ medium-to-long term growth despite short-term earnings pressure.
All-in-all, AmResearch retained its “overweight” outlook on the REIT sector even as the research house is cautiously optimistic on the recovery of retail REITs under our coverage.
“While we foresee a bumpy recovery in the immediate term, dragged by the emergence of the new COVID-19 Omicron variant, earnings visibility and associated risks of the sector have now improved compared to the earlier quarters, thanks to the wide roll-out of vaccines both locally and globally together with the re-opening of domestic economy in stages,” added AmResearch.
The risks to AmResearch’s “overweight” call are (i) slower-than-expected footfall recovery; (ii) massive decline in occupancy rates due to increased competition from an oversupply of retail spaces; and (iii) consumer spending/sentiments deteriorate further or recover at a weaker pace than projections from new viral variants or external events. – Dec 7, 2021
