By CIMB Research
7th Oct 2013
KUALA LUMPUR: CIMB Equities Research is retaining its Neutral call on the Malaysian REIT sector as the dividend yields of 5.1%-5.5% for FY13-14 are not particularly attractive relative to the 3.98% yield for 10-year MGS.
It said on Monday that also due to its bullish view on the overall market, it believes that investors will shy away from defensive stocks such as REITs, preferring sectors that offer higher returns such as oil & gas and construction.
“Our preferred REIT is KLCCP due to the prime location of its assets (Petronas Twin Towers and Suria KLCC) while its property development projects would provide the REIT with key assets in the longer term,” it said.
To recap, StarBizWeek had published an article focusing on the oversupply of retail malls in the Klang Valley which have caused rental rates to be flat in recent times.
“This surprised us as most of the retail REITs under our coverage recently achieved positive rental reversions of 10%-15%. The article did go on to highlight that the main story is not just oversupply but the disparity between the successful malls and the struggling ones,” it said.
CIMB Research said the StarBizWeek report stated successful malls are the likes of KLCC Property’s Suria KLCC and Pavilion REIT’s Pavilion, which thrive due to their status as the go-to destinations for fashion outlets.
According to property valuer Henry Butcher's MD the oversupply and overbuilding situation is only apparent in the city and not in the smaller towns.
“We think that the oversupply of malls is not a major concern yet. However, by 2015, mall space will increase by 28%, which could affect the occupancy rates of even the malls that are doing well.
“We recommend that investors stop accumulating REITs as dividend yields are not attractive relative to the risk-free rate. In the longer term, the rental reversion outlook does not look bright given the mall glut which will depress future rental reversions,” it said.[Source]
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