KUALA LUMPUR: Real estate investment trusts (REITs) will remain a strong defensive yield play in 2025, given the stable economic and rental growth outlook.
RHB Investment Bank Bhd (RHB Research) said the market is still waiting for interest rate cuts to begin in the region.
The firm has maintained a "neutral" stance on the sector and selected Axis REIT and Sunway REIT as its top picks.
"With high occupancy rates and normalised rental reversions moving forward, we prefer REITs with more inorganic growth prospects, especially as interest rates may have peaked at this juncture.
"We like Sunway REIT for its diverse property portfolio and active acquisition strategy.
"As for Axis REIT, it is our pick due to the resilient industrial subsector, and it should record strong distribution per unit (DPU) growth in the financial year 2025 (FY25) on the strength of new acquisitions made," it said in a note.
Adding further, RHB Research said the potential acquisition of Mid Valley Southkey Mall makes IGB REIT a wild card, especially given the high footfall to the mall during weekends due to the high spending power from travellers from Singapore.
It was noted that the REIT also has a low gearing ratio, which should easily fund the acquisition.
Meanwhile, it highlighted that Sentral REIT is attractive for its high dividend yield.
RHB Research also does not foresee any significant risk to costs for REITs in the near term, after being hit by higher electricity tariffs and borrowing costs last year.
At the same time, it said rental reversions growth should also be normalised two years after the economic reopening, with most REITs' guidance for mid-single-digit rental reversions.
"For the malls under our coverage, the improving tourism industry will be a key driver for retail spending, and for Suria KLCC and Pavilion Kuala Lumpur specifically, this should help to offset the increased competition from The Exchange TRX," it noted.
Furthermore, RHB Research said the outlook for the office sector remains challenging due to the supply-demand imbalance.
The firm believes that earnings will be sufficiently supported by its stronger office assets, especially following the acquisition of Menara CelcomDigi in December 2023, while occupancy rates may fluctuate as tenants move around.