PETALING JAYA: Unlike industrial real estate investment trusts (REITs), the retail REITs segment is expected to do well this year buoyed by various factors.
While retaining its “neutral” stance on the REITS sector in view of its balanced risk to reward profile, Hong Leong Investment Bank (HLIB) Research said it has a preference for retail REITs.
It attributed this to steady domestic demand, spurred by government initiatives to boost disposable income, a strong labour market and sustained wage growth, as well as improving tourist arrivals, which are expected to benefit this segment.
The research house said its top picks for the sector remain in Sunway-REIT and Pavilion-REIT.
“We continue to like Sunway-REIT not just for its diversified asset base, but also for its strategically located prime malls and hospitality assets, which will continue to benefit from stronger domestic spending, as well as higher tourist arrivals.
“As for Pavilion-REIT, we think that its prime malls of Pavilion KL and Elite Pavilion Mall will continue to be beneficiaries of higher tourist footfall and spending, while rental contribution from Pavilion Bukit Jalil continues to improve.
However, HLIB said the strong demand for industrial properties has resulted in elevated asking prices.
“Our checks indicate that current asking prices have a cap rate of 5% to 6%. Therefore, the lack of yield accretive acquisitions could pose a limiting factor for any further upside for industrial REITs,” the brokerage added.