Hwang DBS Vickers: Re-rating potential for REITs

KUALA LUMPUR (Sept 13): Hwang DBS Vickers Research believed that there would be a further re-rating of real estate investment trusts (REITs) in Malaysia (MREITs) as more initial public offerings (IPOs) come onto the market.

This is coupled with the RM12 billion worth of malls, which have REIT potential, which are expected to come online.

Moreover, investors would be attracted to REITs for its more diversified and resilient exposure to the retail sector, higher yields and as a means to hedge inflation, it said in a research note on Thursday.

Strong private consumption in Malaysia, despite slowing gross domestic product (GDP) growth and tightening households, have resulted in retail sales expanding at an eight-year compounded annual growth rate of 19%.

"We see further upside with two more REITs launching in 2H12 and beyond at new benchmark yields," it added.

Hwang's top picks included CapitaMalls Malaysia Trust (CMMT), Sunway REIT and Pavilion REIT.

It also opined that retail MREITs have a stronger growth potential compared to SREITs given a rental reversion of between 5% and 8% versus 3%-4% per annum.

"The next major rental revision for key prime malls will be in 2013-14 and should continue to see a healthy uptrend (10% to 15% over a typical three year lease," it said, adding that shopping complex occupancy rates have increased to 85% despite new mall openings.

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