REITs Remain Attractive as Stable Income and High Yields Offset Market Volatility

Malaysian real estate investment trusts (REITs) continue to stand out as defensive investments, supported by stable rental income, resilient earnings and consistent dividend distributions. Despite these strengths, REIT share prices have experienced greater volatility than their underlying fundamentals would suggest.

Since 2018, the KL REIT Index has underperformed the FBM KLCI during several major market disruptions, largely due to sensitivity to interest rate movements and weaker earnings from retail and hospitality assets during the Covid-19 pandemic.

Beyond operational performance, REIT valuations are influenced by three key factors: interest rates, fund flows and withholding tax policies. Higher interest rates typically weigh on REIT valuations by making fixed-income alternatives more attractive.

REITs Remain Attractive

From a long-term perspective, distribution per unit (DPU) growth remains a key indicator of underlying quality. Among Bursa Malaysia-listed REITs, six recorded positive 10-year DPU compound annual growth rates. Sunway REIT led with 5.2%, followed by IGB REIT at 3.7% and KLCCP Stapled Group at 3.1%.

High-quality assets in prime locations, coupled with effective management, remain critical drivers of sustainable growth.

Maintaining a positive sector view, analysts see recent share price weakness as a buying opportunity. The KL REIT Index currently offers a dividend yield of 6.2%, with a yield spread of 240 basis points over the 10-year Malaysian Government Securities yield, well above the eight-year average of 163 basis points. Top sector picks are Sunway REIT, Pavilion REIT and IGB REIT.

MBSB

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