Maybank Investment Bank Berhad (Maybank IB) remains NEUTRAL on M-REITs going into 2024, amid sustained occupancy and rental rates, and asset injection to provide the growth.
Elsewhile, Maybank IB expects BNM to pause on interest rate, with the OPR to stay at 3% throughout 2024, providing respite to higher financing cost experienced in 2023.
The Bank’s top BUY pick is YTLREIT. Other BUYs are PREIT, SENTRAL and AXRB. The sector’s average CY24E net DPU yield of 6.4% is decent.
CY24E earnings to grow at +9.1%
Maybank IB forecasts M-REITs’ CY24E earnings growth to remain decent at +9.1% (2023E: +6.9%), supported by sustained occupancy and rental rates, plus several new asset injection (ie. into PREIT, CLMT, SREIT, SENTRAL, AXRB and YTLREIT).
YTLREIT is their Top BUY, due to its strong dividend yield of 8.1% and improving performance from its Australia hotels. Rental income from its Malaysia and Japan hotel portfolios should remain resilient due to their long-term master lease arrangements. They also have BUY ratings for PREIT, SENTRAL and AXRB.
Maybank IB expects PREIT to benefit from improved performance of Pavilion KL and full-year contribution from Pavilion Bukit Jalil. Meanwhile, SENTRAL’s earnings growth will be supported by higher occupancy rate for its office assets and new contribution from Menara CelcomDigi.
The Bank continues to like AXRB due to its high exposure to the industrial segment and active search for new assets to grow its portfolio.
Higher interest for high yielding stocks
With global monetary policy tightening at its tail-end, interest should return to high yielding stocks in 2024.
M-REITs currently offer an average CY24E net yield of 6.4%, primarily led by YTLREIT (8.1%) and SENTRAL (7.9%).
Meanwhile, the sector’s trailing net yield spread against the 10Y MGS yield is at 227bps, above its 10-year mean of 121bps (Fig 1). The Bank’sFixed Income Research Team expects 10Y MGS yield to lower to 3.50% by end 1H24, translating into a 1H24E net yield spread of 192bps.
Stabilized OPR should ease operating costs
Elsewhile, Maybank IB’s Economics Team expects BNM to pause on interest rate, with the OPR to stay at 3% throughout 2024. This will provide respite to higher financing cost experienced in 2023.
As at end-Sep 2023, the sector’s floating rate debt exposure was 54%, while MREIT’s interest costs in CY23E ranged between 3.8% to 5.4% (vs. CY22: 2.8%-4.3%).
