Short Position - Rentals downside, Courier licence freeze


The rental revenues for IGB Real Estate Investment Trust Bhd (IGB REIT), which owns the Mid-Valley Mega Mall and the Gardens, has experienced a 27% decline in gross rental revenues for the first nine months of the year.

More downside for rentals?

EVEN before the Covid-19 pandemic, rentals in retail outlets in some areas were already sluggish due to oversupply. The pandemic dealt a killer blow as retail outlets saw shopper traffic falling by as much as 50%.

In some instances, such as the retail outlets under Capitaland Malaysia Mall Trust Bhd (CMMT), the decline in shopper traffic for the third quarter was down 32% compared with the same period last year. Nevertheless, it was much higher than the second quarter shopper traffic.

Nevertheless, the decline in rental rates for CMMT is not as bad as some of its peers. For the first nine months of the year, CMMT, which has five malls, under its belt saw its average rental revenue decline by 22%.

The rental revenues for IGB Real Estate Investment Trust Bhd (IGB REIT), which owns the Mid-Valley Mega Mall and the Gardens, has experienced a 27% decline in gross rental revenues for the first nine months of the year.

Two other notable retail mall owners are Sunway REIT Bhd and KLCC Property Holdings Bhd (KLCCP). Based on the first six months numbers, Sunway REIT’s rental numbers are about 7% lower while the decline in KLCCP is almost 19%.

On average, most malls have seen a decline in rental rates of about 20% or more.

IGB REIT’s performance, which is a decline that is higher than the average of the other malls, may probably be due to the bigger discounts the management has given to tenants to weather the storm during the pandemic.

Maybe, its tenant mix is not as strong as other malls, which resulted in many shops closing or being unable to pay the rentals.

If any of the retail owners had thought that the worst challenge they would face is the Covid-19 pandemic, they are wrong. There are a slew of mega malls that are coming into the market from next year.

Merdeka PNB118, the tallest building in Malaysia, is due to come into the market next year. It will only add on to the oversupply of retail space. And this oversupply will not have a vaccine or cure.

Courier licence freeze

IT is always a delicate balancing act in how government’s dish out licences to operators providing important services to the public.

They include banking, telecommunications, courier and e-money services.

Too few licences would tend to inhibit competition. But too many licences brings about another problem – intense competition that leads to price wars which could ultimately damage the profitability of operators.

That, in turn, would inhibit them from investing and becoming innovative. Players then shut down and many lose jobs.

Two examples of such cases are obvious. One is e-money licences issued by Bank Negara. At last count, there were some 54 licencees, including six banks.

In comparison, China, which has a population of around 1.4 billion, is served by two main e-wallets – WeChat Pay and Alipay, both are hugely successful players.

This is why the industry is said to be poised for consolidation.

The smaller e-wallets will either see themselves being acquired by the bigger boys or die a natural death.

Another sector is courier services. As of October, there were 109 multi-category courier service licencees operating in Malaysia.

This week, the Malaysian Communications and Multimedia Commission (MCMC) said it would not issue any new courier licences for two years.

MCMC said the moratorium was implemented to allow the government, along with postal and courier players, to address the various industry challenges stemming from technological changes and market trends.

However, a consumer group has voiced concern over the freeze, calling it a “backward” move and one that would give the big players a monopolistic advantage. But while the concern is understandable, the reality is that with so many licences issued, there can’t be monopolistic concerns.

In fact, the courier industry does look like it is overpopulated, which is already resulting in some players dying out. It is learnt that the industry currently employees more than 60,000 people, and the figure is likely to be more than 100,000 if agents and contractors related to industry are included.

By freezing the licences now, it gives a chance to the sector to become sustainable and to grow in line with the boom in e-commerce.

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