PETALING JAYA: There are expectations of an eventual earnings recovery for retail and hospitality real estate investment trusts (REITs) in Malaysia this year.

       This will be driven by lower rental assistance and the soon re-opening of international border gates, said Maybank Research.

       “We remain selectively positive on the REITs with industrial properties, prime malls and office with long-term tenants where earnings will be supported by resilient rental income and sustained occupancy rates,” it said.

       Commenting on the recent fourth quarter results for the 2021 year, Maybank Research said the REITs were mostly performing above expectations.

       The average core net profit growth seen were to the tune of 31% year-on-year (y-o-y) and 99% quarter-on-quarter, it noted.

       “Growth was mainly supported by the retail assets due to easing of movement restrictions and also long-term office tenants,” it said.

       However it also noted that there is limited rental growth potential over the short-to-medium term for retail malls and offices.

       Given the expectations, it has maintained its “neutral” call on the sector.

       “Our selective buy calls are on Axis REIT, Sentral REIT, Pavilion REIT and KLCC REIT. The sector offers 2022 and forecast 2023 average net dividend per unit yields of 5.5% and 6.7% respectively,” Maybank Research said.“Our top buy pick is Axis REIT which offers a 5.6% forecast net yield for 2022. Sentral REIT, Pavilion REIT and KLCC REIT offers 7.6%, 5.2% and 4.9% forecast yields respectively,” it added.

       It also noted that there was a recovery seen in the retail footfall levels with the easing of pandemic restrictions.

       “We understand that the retail segment saw encouraging recovery in retail footfalls and retail sales, with prime malls recording almost pre-pandemic levels, boosted by the festive seasons. Core net profit for REITs with shopping malls saw a jump of up to 41% y-o-y quarterly earnings, mainly due to lower rental rebates,” it said.

       “We expect a progressive recovery for the retail sub-segment this year from a reduction in rental assistance. However, outlook for rental reversion remains muted,” the research house added.

       Meanwhile, it said that any overnight policy rate which may rise at the end of this year would marginally nudge lower selected REITs bottom lines by an average of 1%.

       “As at end-2021, our coverage’s debt base was at a circa 47% comprised of floating rate debt, with average interest cost in 2021 having ranged between 2.8% to 4.3%,” Maybank Research said.