KUALA LUMPUR: Real estate investment trusts (REITs) are poised to post stronger earnings on the back of ongoing acquisitions and asset enhancements, according to RHB Investment Bank Bhd (RHB Research).
The firm said AME REIT is on track to complete RM148 million worth of acquisitions, while Axis REIT is expected to deliver healthy year-on-year earnings growth following RM644 million in acquisitions completed in the second half of 2024.
IGB REIT's RM2.7 billion acquisition of Mid Valley Southkey was highlighted as a key move to tap into growth opportunities in the Iskandar Malaysia market.
Meanwhile, Pavilion REIT is anticipated to finalise the acquisition of Pavilion Hotel KL and Banyan Tree KL for RM480 million. RHB Research said this would provide positive operating synergies with its flagship mall.
Sentral REIT is also expected to complete its RM70 million acquisition of Arcoris Plaza, part of its strategy to diversify its asset base. The firm said a potential disposal of the vacant Wisma Sentral Inai could help reduce borrowing costs.
Sunway REIT recently completed Phase 2 of its refurbishment of Sunway Carnival Mall, which is expected to support a strong rebound in average rental rates.
Despite downside risks from the expanded Sales and Service Tax (SST) and new electricity tariffs, the research house said REITs are well positioned to weather the impact due to growth initiatives and tenant relationship strategies.
"While there is no clear guidance yet on the impact from the new cost pressures, we think REITs may delay the imposition of higher rental reversions for certain tenants to maintain positive relationships while they adjust to the new cost base, which would be more beneficial in the long run.
"Likewise, REITs in the past have delayed raising the service charge to tenants due to a higher electricity tariff," it said in a research note.
RHB Research's top pick is Pavilion REIT, citing attractive dividend yields compared to its closest peers, backed by high occupancy rates that should support solid earnings growth in the long term.
Overall, the firm has maintained an "Overweight" call, adding that REITs remain a reliable shelter for investors seeking defensive assets, supported by robust domestic spending, easing bond yields, and inorganic growth strategies across multiple REITs.
"We think the pros outweigh the cons, most notably from the expansion of SST, which could potentially provide a downside risk to rental reversions, of which the REITs with strong asset quality should be relatively shielded from," it added.