CGS-CIMB: Rental rebates by retailers negative for REITS

  • Business
  • Wednesday, 19 Feb 2020

PETALING JAYA: Rental rebates by retailers will have a negative impact on real estate investment trusts (REITs) that own retail malls, according to CGS-CIMB Research.

The research house said that retailers have been asking mall owners for rental rebates due to the impact of the Covid-19 outbreak.

Quoting a news report by a financial daily, CGS-CIMB said retailers are urging mall and shop operators and landlords to provide rebates of 30%-50%, which is similar to initiatives in Hong Kong and Singapore.

“A prolonged period of 30%-50% rental rebates would be negative for REITs with ownership of retail malls. If the rental rebates take effect within the next six to eight months, they would dent rental revenue and net property income (NPI) at least over the next two quarters, ” it said in a report.

Among the losers are CapitaLand Malaysia Mall (CMMT), IGB Reit, Pavilion Reit, and Sunway Reit, which have relatively larger revenue and NPI exposure to the retail space.

For CMMT, retail make up 87%-90% of total group revenue and NPI at end-FY19.

For Pavilion REIT, which owns Pavilion Mall, Intermark Mall, Elite Pavilion Mall and Da Men Mall, retail assets constituted 98% of total group revenue and NPI in FY19.

For Sunway REIT, which owns Sunway Pyramid Mall, Sunway Carnival Mall, SunCity Ipoh Hypermarket and Sunway Putra Mall, retail contributed 68% to total group revenue and 63% of total group NPI in FY19.

Meanwhile, KLCCP and MQ REIT generate 36%-68% of total group revenue from retail space which accounts for 41%-63% of NPI.

Companies such as Axis REIT and IGB REIT are CGS-CIMB’s top picks among the listed REITs. It remained neutral on REITs pending the stimulus package related to Covid-19 that will be announced on Feb 27.

“We believe any initiatives to boost consumer spending and aid retailers may be disclosed during the announcement of the Covid-19 outbreak-related stimulus package, ” CGS-CIMB said.

Meanwhile, a joint statement issued by several retailers associations, stated that the rebates could help tenants cope with weakening sales. The appeal from the retail associations highlighted that since the Covid-19 outbreak, retailers have been facing declining revenue.

Since the outbreak, retail sales have dropped by as much as 50% and some are expecting a further revenue drop of 80% over the coming months.

“Retailers hope that business will recover within six to eight months, ” the retail associations said.

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