REIT stocks advance on improved 2015 earnings outlook

KUALA LUMPUR (Dec 19): Local real estate investment trusts (REIT) edged up in tandem with the broader  market in the morning session on Friday with 10 out of the 16 REIT stocks making gains between 1-3% on the back of improved earnings outlook in 2015 for REIT.

The YTL Hospitality REIT, the top gainer among the REIT stocks, went up 2.08% to 98 sen from 96 sen, with 59,100 units done.

This was followed by Quill Capital Trust that rose 1.75% or 2 sen to RM1.16 with 50,500 shares changing hands.

Also, IGB REIT edged up 1.59% to RM1.28 from RM1.26, with 386,800 units traded.

Meanwhile, Capitamalls Malaysia Trust was also up as much as 2 sen or 1.46% to RM1.39, with 717,200 units done, the highest trading volume among its peers.

Other REIT stocks that rose above 1% included Axis REIT, up 1.43% to RM3.55; Sunway REIT 1.35% or 2 sen to RM1.50; Amanahraya REIT 1.27% to 79.5 sen.

However, Hektar REIT and Al-Aqar REIT went gone against the trend and suffered marginal lost in the morning trading.

Hektar REIT lost 1.35%, or 2 sen to RM1.46, while Al-Aqar Healthcare REIT gone down 0.74% or 1 sen to RM1.34, with a small volume of only 300 shares done.

The favourable performance of the REIT stocks amidst a buoyant broader market came after RHB Research maintained its “neutral” recommendation on the REIT sector going into 2015, and said it believed that the outlook for the REITs overall earnings will start to normalise after being hit by higher expenses in 2014.

“The lowered risk of an overnight policy rate (OPR) hike should mitigate the REITs’ exposure to interest rate volatility. We still prefer the retail segment, given its stable annual rental growth of about 5-7% and because we expect the goods and services tax (GST) to have minimal impact on sector earnings,” it said.

RHB opined that some of the REITs are likely to see some earnings boost, either from the injection of new assets or the extensive refurbishment of existing portfolio assets.

“Both Quill Capita Trust (QCT) (Neutral, TP: RM1.25) and Axis REIT (Neutral, TP: RM3.55) are expected to wrap up their respective asset acquisitions sometime towards the end of the fourth quarter 2014 (4Q14) or early first quarter 2015 (1Q15).

“Sunway REIT has also announced some small injections recently. We expect Sunway REIT, CapitaMalls Malaysia Trust (CMMT) (Neutral, TP: RM1.41) and Hektar REIT (Neutral, TP: RM1.43) to start reaping the fruits of their labour, as the extensive refurbishments of their malls are due to be completed before end-1H15,” it said.

However, the research house noted that with the GST kicking in from Apr 1, 2015, future acquisitions could prove to be challenging, as all purchases of commercial assets will be subjected to the 6% GST – potentially causing the assets’ yields to become less attractive.