KUALA LUMPUR: Malaysian Real Estate Investment Trusts (REITs) is expected to continue its positive momentum in 2025 on the back of strong fundamentals and a stable macroeconomic outlook, RHB Investment Bank Bhd (RHB Research) said.
Maintaining an "overweight" stance on the sector, the firm said the occupancy rates for REITs under their coverage have improved to a high level and managements largely guided for healthy rental reversions ahead.
While market sentiment has shifted towards slower interest rate cuts in 2025, RHB Research anticipates the downward trajectory to remain supportive of REITs' valuations over the medium term.
Although the US 10-year bond yield has been more volatile, ranging between a low of 3.6 per cent to a high of 4.7 per cent in 2024, the 10-year Malaysian Government Securities (MGS10) bond yield has remained broadly stable around 3.8 per cent.
"While we do not expect any cuts to the overnight policy rate (OPR) in 2025, interest rate cuts globally should place downward pressure on the MGS10 yield, supporting REITs' valuations," it said in a note.
RHB Research said the growth rate of new supply of retail space in Kuala Lumpur is expected to ease over the next two years which should lead to better occupancy rates.
Retail spending should also remain strong, boosted by a higher minimum wage, broad civil servants pay hike, and improving tourism industry.
"As such, we generally expect mid-single digit rental reversions for the retail REITs under our coverage, with more upside to rental rates for Sentral REIT and IGB REIT following their major refurbishments," it added.
The firm stated that the current improved sentiment on REITs, including sizeable listing of new REITs which could garner more interest, is favourable for asset acquisitions, to be funded via a combination of debt and equity with less dilutive effects.
After Axis REIT's largest private placement yet in Oct last year, RHB Research said 2025 will see a sizeable placement for Pavilion REIT's acquisitions of Banyan Tree, Pavilion Hotel and potentially for the balance payment of Pavilion Bukit Jalil.
Meanwhile, Sentral REIT could also potentially enter the capital market as it targets to grow its portfolio to RM14 billion by end-2027 from current RM10 billion.