For the present, Affin Hwang is maintaining its earnings forecast and stock recommendations. It maintained its overweight call on the sector while its top picks are Axis REIT and KLCC Stapled Group.
"In general, we do not expect a significant worsening of the coronavirus outbreak in Malaysia and hence, the overall impact to MREITs’ earnings should be manageable.
"However, a prolonged or worsening of the outbreak, if materialised, may trigger a further cut in BNM’s overnight Policy Rate (OPR), which will in turn support the economy and MREITs’ valuations, in our opinion," it said.
Affin Hwang said retail-REIT managers it spoke to have yet to notice any adverse impact from the coronavirus outbreak on their malls' footfall although there has been a decline in room occupancy and bookings in hotels.
According to the managers, the current decline in shopping mall traffic is owing to the post Lunar New Year lull while February is a seasonally weaker month.
The same managers expect footfall to pick up closer to Hari Raya in May 2020.
In hotels however, there have been cancellations of rooms and events booking although the managers are unable to fully deermine the magnitude of the decline.
"Based on preliminary observations, some managers are seeing cancellations of over 50% while others expect the cancellation rates to come in below 20%," said Affin Hwang.
The research house also noted that foreigners typically account for nearly three-quarters of hotel occupancy for the MREITS under its survey.
On a stock-by-stock basis, the research house said it believes Axis REIT earnings are shielded from the outbreak while the impacts to KLCC Stapled Group and Sunway REIT are low.
In the retail REIT segment, IGB REIT has higher earnings sensitivity to the tenants' sales as compared to Pavilion REIT, and is slightly more susceptible any slowdown in retail spending.
YTL REIT's earnings are vulnerable to the outbreak as lower tourist arrivals to Australia if prolonged may affect its Australian hotels' profitability, which accounts for 40% of FY19A net property income.
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