REITs to benefit from economic recovery

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KUALA LUMPUR: The enhancing outlook for retail ought to lead to a constructive re-rating of retail actual property funding trusts (REITs) with established malls in Klang Valley, in accordance to MIDF Research.

The analysis home estimated the typical distribution yield of REITs to stay engaging at 5.1% and 5.4% for CY22 and CY23 respectively, which is larger by 140 foundation factors than the 10-year MGS yield of three.7%.

“We forecast the distribution yield of REITs to recover in CY22, premised on earnings recovery of REITs. Meanwhile, we adjust the target prices for REITs under our coverage as we rollover our valuation base year.

“Corresponding to the adjustment in target prices, we upgrade IGB REIT, Sunway REIT and Pavilion REIT to BUY. We opine that the improving outlook for retail should result in positive re-rating of retail REITs with established malls in Klang Valley,” it stated.

MIDF stated REITs are anticipated to benefit from economic recovery as footfall at procuring malls get well.

Nevertheless, the analysis home reckoned that rental reversion of procuring malls to stay flattish in 2022 as tenant gross sales take time to get well.

“We expect rental reversion to return to positive territory in 2023 for established malls in Klang Valley such as Mid Valley Megamall, Pavilion KL, Sunway Pyramid and Suria KLCC,” MIDF stated.

Malaysia is ready to reopen its worldwide borders from April 1, 2022.

The reopening of nation borders which have remained closed for 2 years is predicted to stimulate tourism actions in Malaysia.

“As a result, we expect the hotel industry to see light at the end of the tunnel as the hotel industry in Malaysia has been heavily reliant on tourism activities.

“In this context, we expect REITs with exposure to the hotel industry namely Sunway REIT and KLCCP Stapled Group to see a turnaround in the hotel segment in 2H2022.

“Meanwhile, malls that are tourist hotspots such as Pavilion KL and Suria KLCC should also benefit from the reopening of country borders as shopper footfall at the malls is expected to improve,” MIDF stated.

The analysis home estimated the typical distribution yield of REITs to stay engaging at 5.1% and 5.4% for CY22 and CY23 respectively, which is larger by 140 foundation factors than the 10-year MGS yield of three.7%.

“We forecast the distribution yield of REITs to recover in CY22, premised on earnings recovery of REITs. Meanwhile, we adjust the target prices for REITs under our coverage as we rollover our valuation base year.

“Corresponding to the adjustment in target prices, we upgrade IGB REIT, Sunway REIT and Pavilion REIT to “buy”. We opine that the enhancing outlook for retail ought to lead to constructive re-rating of retail REITs with established malls in Klang Valley,” it stated.

MIDF stated REITs succumbed to sell-down in 2020 amid Covid-19 pandemic. The KL REIT Index to a multi-year low of 754.34 factors on March 18, 2022.

The decline in KL REIT Index might additionally partly be attributed to the rising 10-year MGS yield to above 3.75% in March as rising MGS yield reduces the attractiveness of REITs yield.

“In a nutshell, we expect that KL REIT Index ought to stage recovery from multi-year low contemplating that worst ought to be over for REITs as the worldwide financial system is recovering from Covid-19 pandemic.



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