Property bonds, encompassing developers and REITs, total RM67.5 billion, representing 8% of the outstanding Private Debt Securities (PDS) market. Of these, 43% are rated. While credit yields for Malaysian bonds have generally declined year-to-date (YTD), property bonds have performed notably well as investors seek yields amidst tight credit spreads and improved sentiment in the property sector.
Analysts maintain a positive outlook on the sector, with notable performance variations among issuers. Yields for UEMS, MRCB, Tropicana, and PKNS have decreased by 30-70 basis points (bps) YTD, significantly outpacing the 10-20 bps declines seen in the broader AA1-A1 3-5 year sector. In contrast, high-grade issuers like Putrajaya Holdings, SD Property, and Midciti experienced more modest yield reductions of 5-15 bps. YNH Property, however, is an exception, with its yields surging by an average of 327 bps due to multiple-notch rating downgrades.
In the first half of 2024 (1H24), property bond ratings remained relatively stable, with fewer issuers on negative outlooks and some adjustments to stable or positive outlooks. This stability reflects a resilient sales environment and sector support from themes such as the Johor-Singapore Special Economic Zone (JSSEZ) and data centres.
Notably, issuers backed by strong parent companies or established names, such as Gamuda Land, UEMS, SD Property, and SP Setia, have maintained stable ratings. Conversely, Tropicana’s high leverage, CGRE’s exposure to China’s property downturn, and YNH’s credit deterioration have led to negative rating actions, although Tropicana’s outlook has stabilised due to deleveraging.
Property bond issuance increased to RM16.1 billion in 2023, up from RM11.2 billion in 2022, driven by both repeat issuers and new entrants like UDA Holdings, ParkCity Damansara, and Kwasa Utama. Issuance is expected to remain strong in 2024, though growth may slow compared to the 44% surge seen in 2023. In the first seven months of 2024 (7M24), gross issuance amounted to RM9.2 billion, slightly below the RM9.3 billion recorded in the same period of 2023.
Refinancing needs for RM7.1 billion in maturities from August to December 2024 and funding for data centre projects and land acquisitions may influence bond supply, though the exact impact remains uncertain. The share of rated property issuances has increased, with AA-rated bonds rising to 27% from 23% in July 2021, as improved credit profiles allowed issuers like ECW and LBS Bina to secure AA- ratings and new entrants such as UDA Holdings also achieving AA- ratings.
Despite some caution around YNH due to its high 2025 maturities, the overall outlook for developers remains stable, with improved earnings and balance sheets potentially already factored into current bond performance.
REITs, particularly those with retail and hospitality assets like CLMT, Pavilion REIT, and YTLREIT, have reported better results, though gearing ratios have slightly increased. The market will closely watch REITs with upcoming bond maturities, including SunREIT with RM500 million and YTLREIT with RM385 million.
