Investors in Retail M-REITs may have plenty of reasons to smile about lately. Malaysian Retail REITs have outshined the rest of their REIT peers and the FBM KLCI, with some even beating their peers from across the causeway in Singapore.

Retail M-REITs have outperformed the FBM KLCI and the rest of their REIT peers in the country

This is according to Analyst Yee Mee Hui from HwangDBS Vickers Research. “Retail M-REITs offer stronger growth potential than S-REITs, premised on stronger rental reversion and more visible acquisition pipelines", she said in media statement.

And given the fact that shopping malls in Malaysia are still largely owned by private enterprises and conglomerates, there are plentiful opportunities for Retail M-REITs to make accretive acquisitions in the future.

But Yee expects REITs with stronger sponsors such as Sunway REIT and Axis REIT to be better postured for accretive acquisitions as they already have a stable of strong yielding properties. "Given the REITs’ current premium valuations and hence lower cost of capital as well as the low interest rate environment, the relatively higher physical asset yields suggest that most assets can still be acquired accretively", she elaborated in an interview with the Borneo Post. "Meanwhile, we believe the market is still conducive to support the financing of yield accretive acquisitions by any REITs, as the demand for resilient and sustainable dividend yield stocks remains strong due to the low interest rate environment in the regio"n", she added.

Low interest rates in the region have sustained the demand for high yielding instruments such as REITs by investors. It is foreseeable that there will be an increase in foreign companies, such as Singapore-based CapitaMalls Asia, launching more REITs or making more property acquisitions in Malaysia given the opportunities highlighted above.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.