REIT sell-down is a buying opportunity

KUCHING: The recent selldown in Malaysia Real Estate Investment Trusts ( MREITs) have presented a buying opportunity for investors looking to expand into the space says the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research).

According to the research arm, the MREITs listed on Bursa Malaysia have fallen by 18 per cent year to date ( YTD) while the MREITs under their coverage have lost between minus 4.8 to minus 29.9 per cent YTD – averaging at minus 12.6 per cent.

Capitaland Malaysia Mall Trust (CMMT) was the REIT with the steepest decline in share price at minus 29.9 per cent YTD while IGB REIT was more stable at minus 4.8 per cent.

The current sell- down is attributed mainly to the recent hike in the overnight policy rate (OPR) which MIDF Research believes is overdone.

“We had factored in the higher borrowing cost from the overnight policy rate (OPR) hike to 3.25 per cent in January and estimated that impact on earnings per unit is limited to minus 0.2 to minus 2.1 per cent,” explained the research arm while adding that they are only expecting one rate hike this year.

Due to the current sell- down, MIDF Research reckons that MREITs are looking more attractive now as some of them are trading closer to their mean price earnings ratio ( PER) with KLCCP trading at - 0.77 times standard deviation below its 5-year mean PER.

“This is followed by Axis REIT at minus 0.07 times, Amanah Raya REIT at 0.23 times and CMMT at 0.34 times.

“Besides that, price to net asset value is also looking more compelling with Amanahraya REIT at 0.6 times, CMMT at 0.8 times, KLCCP at 0.9 times, Axis REIT at 1.0 times and Pavilion REIT at 1.1 times,” the research arm shared.

Moreover, the attractiveness of MREITs is further amplified as the spread between dividend yield between MREITs and the 10-year Malaysian Government Securities ( MGS) yield has widened to 2.3 percentage points, which is higher than the 1.7 percentage points for MREIT’s three-year mean.

Going forward, financial year 2018 ( FY18) is expected to be a modest year MREITs due to the oversupply in the retail and office segment.

MREITs with landmark assets or assets in strategic locat ions may expect to command single- digit positive rental reversions whi le neighbourhood mal ls are expected to see tepid or flat growth.

“We are cautious on growth in 2Q18 due to a lack of major events amid the wait- andsee sentiment prior to GE14. However, we expect better sentiments in 2HFY18 in tandem with World Cup 2018, which may see crowd pulling events in malls. That is also coupled with the year- end holiday, sales and festive seasons,” said the research arm.

Everything considered, MIDF Research believes that the sell- down in MREITs have presented a buying opportunity for investors and as such, upgrade their sector rating to ‘overweight’ from ‘ neutral’ with Sunway REIT as their toppick due to the group’s strong landmark assets.