REITs Show Robust Earnings Growth; Positive Outlook for 2HCY24

Real Estate Investment Trusts (REITs) demonstrated commendable earnings growth in the second quarter of the calendar year 2024 (2QCY24). Notably, Axis REIT led the pack with a 10% year-on-year (yoy) increase in earnings, driven by contributions from Bukit Raja Distribution Centre 2 and new asset acquisitions.

REITs Earnings Growth

Sunway REIT followed with a 9.3% yoy growth, benefiting from positive performance across its retail, hotel, office, and other divisions. IGB REIT also saw a solid earnings increase of 8.9% yoy, supported by favorable rental reversion and strong shopper traffic at Mid Valley Megamall and The Gardens Mall.

However, not all REITs met expectations. Al-`Aqar Healthcare REIT reported a slight miss in earnings due to higher-than-expected trust expenses, while Pavilion REIT and KLCCP Stapled Group showed steadier growth rates of 6.7% yoy and 5.7% yoy, respectively.

Positive Earnings Forecast for 2HCY24

Looking ahead to the second half of the calendar year 2024 (2HCY24), the earnings outlook for REITs remains optimistic. The positive performance of retail and industrial sectors in Malaysia is expected to support continued growth. Although Sunway REIT and Al-`Aqar Healthcare REIT experienced slight declines in the first half of the year (1HCY24), primarily due to higher financing costs and increased expenditures, respectively, the overall trend for the remainder of the year is encouraging.

Retail REITs are likely to benefit from continued strong shopper footfall and positive rental reversion, while the industrial segment remains robust, driven by high demand for industrial space. Sunway REIT, in particular, is expected to see enhanced earnings as the reconfiguration of Sunway Pyramid Mall progresses.

Investment Recommendations

Maintaining a positive outlook on REITs, our top picks include Sunway REIT with a Buy rating and a target price (TP) of RM1.81, and Pavilion REIT with a Buy rating and a TP of RM1.60. The anticipated continued growth and active asset acquisitions underpin a favorable investment stance for these REITs.

In summary, the REIT sector is poised for a strong performance in the latter half of 2024, with positive earnings trends and supportive market conditions contributing to a favorable investment outlook. – Source: MIDF

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