MIDF Research is advising investors who want to venture into Malaysia Real Estate Investment Trusts (M-REITs) to take advantage of the recent sell-down and buy shares while prices are low.
The research division of MIDF Amanah Investment Bank said this is an opportune time to strike as unit prices of M-REITs on Bursa Malaysia have declined by 18 percent year-to-date (YTD).
M-REITs under its coverage have also fallen by 12.6 percent on average over the same period. The lowest decline is 4.8 percent for IGB REIT, while the steepest is 29.9 percent for Capitaland Malaysia Mall Trust (CMMT).
MIDF Research noted that the present sell-down of M-REITs primarily occurred after Bank Negara Malaysia (BNM) raised its overnight policy rate (OPR) by 25 basis points to 3.25 percent in January.
“We had factored in the higher borrowing cost from the OPR hike to 3.25 percent in January and estimated that impact on earnings per unit is limited to minus 0.2 to minus 2.1 percent,” it noted, adding that they expect the rate to remain at this level this year.
In addition, this is a good time to acquire M-REIT shares as some of them are trading nearer their average price earnings ratio (PER).
For instance, units of KLCCP is selling at below its five-year mean PER at negative 0.77 times. “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.”
Furthermore, MREITs are a more attractive investment than the 10-year Malaysian Government Securities (MGS) as the yield gap between them rose from 1.7 percentage points to 2.3 percentage points.
As such, MIDF Research is advising investors to acquire MREITs shares, especially that of Sunway REIT, which is its top pick due to its popular landmark properties.
While the M-REIT market is expected to grow modestly this year because of a supply glut of offices and retail properties, trusts with sought-after assets in strategic locations are expected to enjoy a single digit gain in rents. On the other hand, neighbourhood malls could record flat or tepid growth.
“We are cautious on growth in Q2 2018 due to a lack of major events amid the wait-and-see sentiment prior to the 14th General Election. However, we expect better sentiments in 2H 2018 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,” added MIDF Research.
Image sourced from NST Online
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