RHB Investment Bank Bhd (RHB Research) has maintained an OVERWEIGHT call on Malaysian REITs (M-REITs), highlighting Axis REIT (AXRB) and Sunway REIT (SREIT) as its top picks for 2025. The research house believes that strong fundamentals and a stable macroeconomic environment will continue to support M-REITs' performance. The research house emphasised that high occupancy rates across covered REITs and positive rental reversions will be key drivers of growth.

Despite a shift in market sentiment toward slower interest rate cuts, RHB Research expects the gradual global reduction of interest rates to provide medium-term support for REIT valuations. The dividend yield spread between the Bursa Malaysia REIT Index and 10-year Malaysia Government Securities (MGS10) currently stands at a healthy 160 basis points, aligning with historical trends. While the US 10-year bond yield exhibited volatility in 2024, ranging between 3.6% and 4.7%, the MGS10 yield has remained stable around 3.8%, ensuring a favourable environment for M-REITs.

Retail REITs are positioned to benefit from easing retail space supply in Kuala Lumpur, alongside robust retail spending driven by a higher minimum wage, salary adjustments for civil servants, and improved tourism activity. These factors are expected to lead to mid-single-digit rental reversions, with SREIT and IGB REIT likely seeing further upside following recent refurbishments of key assets.

Inorganic growth opportunities are also in focus, with the positive sentiment surrounding REITs encouraging asset acquisitions. RHB Research highlighted AXRB's record RM684 million worth of acquisitions in 2024, projected to drive a 10% increase in distribution per unit in FY25. Similarly, Pavilion REIT is set to undertake a sizeable placement to fund acquisitions, including the Banyan Tree and Pavilion Hotel properties, as well as further payments for Pavilion Bukit Jalil. SREIT is also poised for portfolio expansion, targeting a total portfolio value of RM14 billion by 2027, up from its current RM10 billion.

RHB Research views AXRB as a robust proxy to the resilient industrial property sector, while SREIT's diversified portfolio and active acquisition strategy underline its strong earnings potential. Both REITs are expected to be key beneficiaries of supportive macroeconomic conditions and strategic growth initiatives.