REITs to see higher 2024 earnings growth of 9.1 pct

KUCHING: The research arm of Maybank Investment Bank Bhd (Maybank research) is forecasting Malaysian Real Estate Investment Trusts (REITs) to see calendar year 2024 (CY24) earnings growth of 9.1 per cent, higher than their estimated CY23 earnings growth of 6.9 per cent.

In a recent sector report, the research arm who maintains a ‘Neutral’ call on the sector guides that the higher earnings growth is supported by sustained occupancy and rental rates, as well as several new asset injections in the sector.

They add that YTL REIT is their current top pick of the sector due to its strong dividend yield of 8.1 per cent 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.”

Maybank Research’s other ‘Buy’ picks include Pavilion REIT due to improved performance of Pavilion KL and contribution from Pavilion Bukit Jalil, Sentral REIT’s supported earnings growth from higher occupancy of its office assets and new contribution from Menara CelcomDigi, and AXRB REIT due to their high exposure to the industrial segment and active search for new assets.

Additionally, with the global monetary policy tightening at its tail-end and interest expected to return to high yield stocks in 2024, the research arm reckons that Malaysian REITs may see some increased interest in 2024.

“Malaysian REITs currently offer an average CY24E net yield of 6.4 per cent, primarily led by YTL REIT’s 8.1 per cent and SENTRAL REIT’s 7.9 per cent.

“Meanwhile, the sector’s trailing net yield spread against the 10Y MGS yield is at 227bps, above its 10-year mean of 121bps,” the research arm shared.

“Our Fixed Income Research Team expects 10Y MGS yield to lower to 3.50 per cent by the end of the first half of 2024 (1H24), translating into a 1H24E net yield spread of 192bps,” they added.

On a separate note, the research arm also guides that they’re expecting Bank Negara Malaysia (BNM) to pause on interest rate hikes and anticipate the overnight policy rate (OPR) to remain at 3 per cent for the remainder of 2024.

“This will provide respite to higher financing cost experienced in 2024.

“As at end-Sep 2023, the sector’s floating rate debt exposure was 54 per cent, while MREIT’s interest costs in CY23E ranged between 3.8 to 5.4 per cent versus CY22’s 2.8 to 4.3 per cent.”