RHB Research has maintained a “Neutral” recommendation on REIT Sector with AXIS REIT and IGB REIT as its top picks. Axis REIT for its position in the industrial segment and IGB REIT as a recovery play.
The stockbroking house said that it expects to see a gradual recovery for MREITs this year, in line with the broader economic recovery. “The reopening of international borders on 1 April 2022 was especially welcomed for the struggling hotel segment and tourist-reliant malls,” it said.
However, RHB said that it maintains a NEUTRAL call as the combination of flat rental reversions and expected rate hikes will probably keep yields at unappealing levels.
On the retail segment, it said that despite COVID-19 cases reaching c.30k per day at end-February due to the Omicron variant, management revealed that footfalls remained stable, only displaying an expected post-Lunar New Year dip.
It said that while we cannot rule out new COVID19 variants that may prove more disruptive in the future, we think that this is encouraging for this sub-sector that is just beginning to recover. “This is reflected in the Department of Statistics Malaysia’s (DOSM) recent Wholesale & Retail Trade report which showed a 10.2% YoY growth for February, with a slight decrease of 0.4% MoM,” it said.
RHB said that the priority for REITs will be on improving their occupancy rates. “The recovery for retailers is uneven as some smaller malls are still trying to recover from the pandemic. We believe that rental assistance will remain in 1H22, albeit at a much smaller quantum,” it said.
RHB said that the influx of new retail space also adds pressure to REITs to maintain occupancy rates. The focus for investors should be on REITs with prime retail assets that can withstand this pressure.
