MIDF Research maintains ‘Neutral’ call on REITs sector


MIDF Research has maintained its ‘Neutral’ call on real estate investment trusts (REITs) sector with Sunway REIT being the top pick.

Sunway became the top choice as it is positive on its retail division, which was underpinned by the resilient performance of the Sunway Pyramid Shopping Mall.

It said Sunway’s office division is expected to recover in FY17 as the worst is over for the division.

“We also have a ‘Buy’ call on AmanahRaya REIT as we like its asset portfolio, with education property exposure and attractive dividend yield of 5.8%. We are also positive on the entry of Kenedix Inc (a Japanese real estate asset management company) which should bode well for the asset management prospect for AmanahRaya,” the research firm said.

“For the recently concluded first-quarter of 2017 (1Q17) earnings reporting season, all the seven REITs under our coverage reported in line results. Among seven REITs under our coverage, Sunway reported highest quarterly earnings growth of 8.6% year-on-year (YoY) in 1Q17.”

Sunway’s cumulative earnings grew 5.6%, mainly spurred by the higher earnings contribution from Sunway Pyramid, Sunway Carnival Mall and Sunway Putra Mall.

Meanwhile, IGB REIT recorded the second-highest quarterly growth of 3.5% YoY, driven by resilient earnings from Mid Valley Megamall and The Gardens Mall.

Overall, it said earnings of REITs were mixed in 1Q17, whereby three REITs reported earnings growth while four REITs recorded lower earnings.

“We believe REITs are on track to achieve our earnings forecast, and we expect marginal earnings recovery of REITs in financial year 2017,” it said.

“Post 1Q17 earnings reporting season, our earnings estimates and target prices for REITs were left unchanged as earnings of REITs came with no surprises to us. Similarly, recommendations for REITs under our coverage remain intact,” it added.

It said REITs with ‘Buy’ calls include Sunway and AmanahRaya, while REITs with ‘Neutral’ calls are Axis REIT, IGB, KLCCP Stapled Group, CapitaLand Malaysia Mall Trust and the Pavilion REIT.