RHB Research has maintained its Overweight recommendation on the Malaysian Real Estate Investment Trust (M-REIT) sector, citing attractive yields, stable earnings prospects and supportive financing conditions.
The research house said the Bursa Malaysia REIT Index (KLREI) has underperformed the broader market, declining 0.3% year-to-date (YTD). However, it believes the sector remains appealing for investors seeking stable income opportunities due to resilient earnings, dividend visibility and undemanding valuations.
RHB highlighted that the KLREI’s yield spread against the 10-year Malaysian Government Securities (MGS) yield has widened to around 200 basis points, about 0.5 standard deviation above its long-term mean, making valuations more attractive.
The outlook is further supported by expectations that Bank Negara Malaysia will maintain a stable monetary policy stance, with the Overnight Policy Rate (OPR) projected to remain at 2.75% in 2026, helping to manage borrowing costs and support acquisition activity.
1Q26 Earnings Remain Resilient
RHB said all eight REITs under its coverage delivered first-quarter 2026 results that were within expectations.
Among retail REITs, IGB REIT recorded a significant improvement, with quarterly net profit rising 52% year-on-year, mainly due to contributions from the Mid Valley Southkey asset injection completed in November 2025.
For office-focused REITs, IGB Commercial REIT stood out, with net profit increasing 28% YoY, supported by improved occupancy rates of 93% compared with 89% previously and higher average rental rates.
In the industrial segment, AME REIT posted a 13% YoY increase in earnings, driven by contributions from six newly acquired industrial properties completed over the past year, alongside full occupancy rates and positive rental reversions.
Retail and Industrial Segments Support Growth
RHB said sector fundamentals remain intact, supported by high occupancy levels and steady rental growth.
Retail REITs are expected to benefit from resilient consumer spending, with Malaysia’s retail sales rising 6.3% YoY in April 2026, compared with 4.7% growth in April 2025.
However, RHB cautioned that consumer sentiment could weaken in the coming months, while tourist footfall recovery may remain uneven amid global uncertainties.
The research house expects prime shopping malls with strong locations, high occupancy and quality tenants to remain better positioned to defend earnings.
A potential easing of Middle East geopolitical tensions could also support stronger tourism recovery, providing additional upside for retail assets.
Office REITs Face Challenges, Industrial REITs Remain Supported
RHB noted that office REITs continue to face challenges due to weaker demand conditions, although yields of around 8% to 9% provide some valuation support.
Assets linked to major transport hubs are viewed as more resilient amid a challenging office market environment.
Meanwhile, industrial REITs are expected to remain supported by structural growth drivers, including manufacturing expansion, policy initiatives, long weighted average lease expiry (WALE) periods and high occupancy rates.
Axis REIT and Pavilion REIT Preferred Picks
RHB maintained Axis REIT and Pavilion REIT as its preferred sector picks.
Axis REIT was favoured due to its position as Malaysia’s largest industrial REIT, strong tenant base, visible acquisition pipeline and stronger liquidity profile.
Pavilion REIT was selected due to its exposure to premium retail assets, improving contributions from Pavilion Bukit Jalil and additional earnings potential from its hotel assets.
RHB warned that key downside risks include yield spread compression, prolonged property oversupply and broader macroeconomic shocks.
