Malaysian REITs down as investors turn cautious

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KUALA LUMPUR (March 21): Share prices of Malaysian Real Estate Investment Trusts (REITs) fell this morning despite a positive market breadth, as cautious investors trimmed positions in a rising interest rate environment.

At the time of writing, Sunway REIT lost as much as 3.8% or six sen to RM1.52, Pavilion REIT declined 2.9% or two sen to a low of RM1.34, while KLCC Property Holdings Bhd inched down 1% or seven sen to RM6.94 thus far.

Industrial-centric Axis REIT slid one sen or 0.8% to a low of RM1.23, while YTL Hospitality REIT and Amanahraya REIT fell as much as 0.9% and 0.6% to RM1.08 and 84.5 sen thus far.

MRCB-Quill REIT too was not spared as it slipped 0.95% or one sen lower to RM1.04 by mid-morning.

A local analyst who declined to be named said some investors are being cautious as they are expecting higher interest rate and a weak distribution per unit (DPU) growth, which both work against REITs whose valuations were not cheap to begin with. 

“The rising yield, or lower asset prices, does not go well for REIT prices. Prices needed to fall so that the yield goes higher to attract buyers," he said.

"But there has been weak retail assets performance which translates into lower rental growth, coupled with the higher borrowing and maintenance. Some retail REITs have seen flat to lower DPU," he added.

REITs, besides consumer big caps or even telcos, are typically viewed as defensive assets compared to general equity classes. Fund managers may move their funds into defensive assets when they are more cautious on the broad market, and vice versa.

In the broader market, the FBM KLCI gained 4.05 points or 0.22% at 1,860.44 points at press time. Market breadth is positive with gainers outstripping decliners at 355 against 267. All indices were trading in positive territory, save for REIT and Properties.

Bursa Malaysia’s REIT Index fell as much as 5.94 points or 4.9% to 856.21 points this morning. It has declined 18.92% year-to-date, from its historical peak of 1,057.35 points scaled on Dec 29.

The US Federal Reserve's two-day policy meeting will start later in the day, where the Fed is widely expected to raise US interest rates for the first time this year.