Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on December 6, 2018

Real estate investment trust sector
Maintain neutral:
Key highlights are as follows: i) third quarter of 2018 (3Q18) earnings of real estate investment trusts (REITs) are mostly in line; ii) earnings forecast maintained for most of the REITs; iii) 10-year Malaysian Government Securities (MGS) yield averages at 4.06%; and iv) our “neutral” stance is maintained; our “buy” calls are on Al-’Aqar Healthcare REIT (target price [TP]: RM1.45), AmanahRaya REIT (TP: 91 sen) and Sunway REIT (TP: RM1.93).

3Q18 earnings of REITs are mostly in line. Core net income (CNI) of six out of the eight REITs under our coverage were in line with our full-year forecasts. During the quarter, we have added Al-’Aqar Healthcare REIT into our universe. The REITs that announced CNI that missed our expectations were CMMT and AmanahRaya REIT. All REITs under our coverage registered positive on-year CNI growth except for CMMT (-12%), Sunway REIT (-7.8%) and KLCCP Stapled Group (-1.2%)

Earnings forecast maintained for most of the REITs. We maintain most of our earnings assumptions as the 3Q18 performance for REITs under our coverage are mostly in line. Nonetheless, we have reduced the TP for CMMT to RM1.02 from RM1.11 previously and Amanahraya REIT to 91 sen from 94 sen previously as we reduce our earnings estimates for these two REITs. Meanwhile, we had initiated coverage on Al-’Aqar Healthcare REIT with a “buy” recommendation and TP of RM1.45. We like Al-’Aqar Healthcare REIT for its unique position as a defensive healthcare REIT in Malaysia.

Ten-year MGS yield averages at 4.06% to date from 4.05% in the previous quarter. MGS yield has changed little quarter-on-quarter. We believe that the yield should stay within the range in the near term.

Yield spread between REITs and MGS yield is unattractive at the moment. Based on our estimates, average yield for REITs under our coverage come in at 5.5%. The current yield spread of 1.4 percentage points (ppts) is deemed unexciting, as it is lower than the three-year mean of 1.7ppts between Malaysian REITs and 10-year MGS yield.

We maintain our “neutral” stance on the REIT sector due to the lack of near-term catalysts. Our top pick for the sector is Sunway REIT (buy; TP: RM1.93) due to the stable earnings supported by its crown jewel Sunway Pyramid. We believe its office segment may improve during the financial year. We also have “buy” calls on AmanahRaya REIT (TP: 91 sen) for its diversified asset base with exposure to education property and an attractive dividend yield of 6.8%, and Al-’Aqar Healthcare REIT (TP: RM1.45) for its unique position as a defensive healthcare REIT. — MIDF Research, Dec 5

      Print
      Text Size
      Share