CIMB retains ‘neutral’ call on Malaysian REITs
Research house worried about oversupply of commercial properties
PETALING JAYA: Fear of an oversupply in the commercial segment of the property market has prompted CIMB Research to maintain its “neutral” call on Malaysian real estate investment trusts (MREITs).
The research house has maintained a cautious stance despite the positive rental reversions and sustained occupancy rates of almost all of the REITs under its watch.
While the oversupply of office and retail space still appears to loom over the sector, high-quality assets with continuous asset enhancement initiatives will continue to be resilient this year.
CIMB Research noted that the sector has yet to feel the heat from the influx of supply, as the second quarter of calendar year 2017 (Q2CY17) results of all MREITs under its coverage were within expectations.
“The MREITs recorded an average core net profit growth of 7% year-on-year (y-o-y) and average distribution per unit growth of 0.9% y-o-y in Q2CY17.
“This can mostly be attributed to new contribution from Menara Shell for MRCB-Quill REIT and positive portfolio rental reversions for all MReits except CapitaLand Malaysia Mall Trust (CMMT).
“MREITs under our coverage sustained retail occupancy rates in the second quarter, except KLCCP Stapled Securities (KLCCSS), which is undergoing a tenant relocation exercise.
“Retail portfolio rental reversions remain in positive territory except for CMMT, which was dragged by negative rental reversions for its Klang Valley assets.
“While the incoming supply of retail space may exert pressure on rental rates, we think strategically-located malls would be able to defend rental rates in 2017,” said CIMB Research.
Tenant sales growth in the second quarter was encouraging, especially for major malls in prominent areas, namely KLCC, Sunway Pyramid, Mid Valley Megamall and The Gardens. CIMB Research said office occupancy rates in Q2CY17 were broadly unchanged on a year-on-year basis, with focus shifting to tenant retention for short-term leases.
Office rental reversions hovered in low to mid single digit territory.