Malaysia - Commercial Properties & REITs

[winston]

The 18th entry

By PANKAJ C. KUMAR

Recent reports have suggested that the office sub-sector is facing some form of glut, not only driven by the pandemic and business closures or scale down of operations, especially with the culture of working from home, but also due to the sheer size of the incoming office supply.

From the National Property Information Centre (Napic), for the the first half of 2021 showed occupancy rate of purpose-built office (private) in Kuala Lumpur fell to 72.2%, down 3.6 percentage points from the first half of 2020 rate of 75.8%.

Data also showed that some 70 office buildings within Kuala Lumpur or approximately 17.1% of all buildings have a vacancy rate in excess of 50%.

A year ago, this figure was 63 buildings or 15.7% of the total number of buildings.

For the record, Kuala Lumpur alone has some 2.54 million square meters of available space and that represents 50.1% of Malaysia’s total vacancy of 5.07 million square meters as at end of the first half of 2021.

Source: The Star

https://www.thestar.com.my/business/bus ... 18th-entry

[winston]

Office REITs ‒ Malaysia
Evolving Landscape − New Environment Post Pandemic?

The pandemic has forced most businesses to evolve and could give the functionality
of offices a slightly different meaning.

With this as a possibility, coupled with the future incoming office space of >4m sf, tenants will look at quality and affordability.

As such, assets in strategic locations will continue to be resilient.

Our top pick is Sentral REIT for its stable occupancy, resilient earnings and attractive dividend yield of at least 8%. Maintain OVERWEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... 7100290cd1

[winston]

REITs ‒ Malaysia
Sector Remains Attractive; Accumulate On Weakness

The sector has outperformed the FBMKLCI ytd (+5% vs -1.9%).

With 1Q22 recording encouraging results, we expect the sector to continue to be resilient and fully recover back to pre-pandemic levels in 2023.

Office REITs offer higher stable yields, followed by retail REITs, which will be boosted by the earnings recovery especially when more international tourists come in.

Maintain OVERWEIGHT. Top picks: Sunway REIT, IGB REIT and Sentral REIT.

Source: UOBKH

https://research.uobkayhian.com/content ... 6e02adffb6

[winston]

World’s second-tallest tower tests Malaysia’s skyscraper appetite amid property demand doubts

Kuala Lumpur already has more super-tall buildings than all but seven cities, and recently it has added another – the 678.9m-tall Merdeka 118, which will fully open to the public later in 2024.

A long spire helped it edge out Shanghai Tower to become the second-tallest building in the world after Dubai’s Burj Khalifa.

Merdeka 118 also holds nationalist symbolism. Its design – a narrow tower consisting of triangular glass planes and a 160m-tall spire – is meant to evoke the image of Malaysia’s first prime minister Tunku Abdul Rahman during a 1957 speech where he raised his right arm and shouted “merdeka”, or independence in Malay, marking the end of British rule.

According to Permodalan Nasional (PNB), the government-linked investment firm behind Merdeka 118, the building was meant to put the company on the world map and create a new national symbol.

One in five homes in Malaysia was unoccupied as at 2020.

In recent years, prices have largely plateaued and owners unable to sell their apartments are finding themselves with underwater mortgages. And yet, new buildings keep coming up.

In the commercial sector – where one-third of office space is empty – there also are not enough tenants to fill the supply.

Merdeka 118 will also house a hotel and an observation deck, while its surroundings include a luxury mall.

At least half of Kuala Lumpur’s 10 tallest buildings, some of which are still under construction, have some government ties.

Source: NST

https://www.straitstimes.com/business/w ... kyscrapers

[winston]

REITs (OVERWEIGHT)
Stable results, strengthening fundamentals

Of the six REITs under our coverage, five reported earnings broadly in line (SENTRAL, IGBCR, PAVREIT, AXREIT, KLCC), while SUNREIT exceeded expectations on stronger hotel occupancy.

QoQ earnings were mostly muted given limited seasonality in office and industrial segments and the non-festive retail period.

As for YoY growth was supported by acquisitions, with further uplift expected from upcoming asset injections.

The office segment also continued to show improving occupancy despite oversupply.

Valuations remain attractive with the sector trading near +1SD yield spread above the five year average, supported by a >30bps decline in 10 year MGS yields YTD.

We maintain our OVERWEIGHT stance, with SUNREIT (RM2.52) as our top pick and Pavilion REIT (RM2.02) replacing Axis REIT as our second top pick after recent price weakness and the rollover of earnings to FY26.

Source: HLIB

[winston]

Malaysia stops giving preferential rate for REIT withholding tax

By Luqman Amin

Malaysians will be taxed based on prevailing individual rates with no withholding tax deduction.

The tax authority added that “the deduction of WHT [withholding tax ]...will not be applicable to resident unitholders”, requiring them to declare REIT income in their annual tax filings.

Foreign individuals and institutional investors will be taxed at 30% of chargeable income.

Non-resident corporations, meanwhile, will pay a final 24% withholding tax rate.

Source: theedgemalaysia.com

https://theedgemalaysia.com/node/796799

[winston]

REITs (OVERWEIGHT)
WHT reset to drive near-term repricing

The removal of the 10% WHT from YA2026 shifts resident non-corporates to a progressive tax regime (0–30%) and raises taxes for non-residents to 30%, resulting in greater dispersion in after-tax returns.

While lower-income investors may benefit, higher-income groups face materially higher taxes, compressing yield efficiency and likely driving near-term downward repricing alongside softer incremental demand.

However, the tax change does not affect REIT operations, with earnings continuing to be mainly supported by acquisitions and rental reversions.

We maintain OVERWEIGHT, with Pavilion REIT as top pick and Axis REIT as second top pick, and upgrade Sunway REIT to BUY following recent weakness.

Source: HLIB

[winston]

REITs (NEUTRAL)
Yield compression drives de-rating

MREITs face increasing pressure following the removal of the 10% withholding tax concession, which compresses post-tax yields and necessitates a de-rating to restore return thresholds for impacted investors.

At the same time, competition from higher-yielding domestic equities and an upward bias in interest rate expectations further weaken the sector’s relative attractiveness as yield spreads narrow relative to the risk-free rate.

While underlying earnings remain supported by rental reversions and asset recycling, potential rising cost pressures for tenants may cap reversion upside in the near term.

Against this backdrop, we downgrade MREITs to NEUTRAL (from Overweight).

Top picks remain PAVREIT for its constructive tourism outlook and AXREIT for its proactive acquisition strategy and Johor exposure.

Source: HLIB