Thursday 28 Mar 2024
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KUALA LUMPUR (Nov 3): Tenant drop-out is likely to be an emerging risk for retail mall owners, said CGS-CIMB Research.

The research house’s analyst Sharizan Rosely said in a note the shutting down of Robinson Co (Malaya) Sdn Bhd highlighted that the risk of tenant drop-out in retail malls is higher for departmental stores, which he deemed the biggest loser amidst Covid-19.

He also said the temporary shutdowns of cinemas suggested that the decline in footfall or tenant sales in October during the conditional movement control order (CMCO) period has a greater impact on non-essential tenants.  

“Anecdotal events in October point to the potential shutdown of certain departmental stores, which have been negatively affected by falling footfall and tenant sales,” he said.

According to him, recent events, which coincided with the reinstatement of the CMCO, also underscore the end-June statistics by Retail Group of Malaysia (RGM) indicating that retail sales for the non-supermarket department store sub-segment of the retail sector in the April to June period plunged 63% year-on-year.

“Our preliminary assessment or checks on retail malls since the reinstatement of the CMCO is that footfall and tenants’ sales could decline by 20% to 30% in 4Q20, and concerns about potential tenant drop-outs could grow if the deterioration in tenant sales is prolonged,” said Sharizan.  

He also said tenancy drop-out for Robinson’s outlet in The Gardens Mall will negatively impact IGB Real Estate Investment Trust (IGB REIT).

“While potential tenancy cut-off and settlement terms remain unknown, the estimated 3.4% negative impact on FY21 revenue and 3.8% negative impact on FY21 net property income should be manageable in the medium term provided a replacement tenant is found or space reconfiguration plans are immediately enacted.

“We do not foresee similar drop-out risks emerging for other non-anchor tenants as tenancy renewals for FY21 are in the negotiation stage and are more likely to favour tenant retention, although this may be at the expense of positive rental reversion,” he said.

As for the Malaysian Association of Film Exhibitors (MAFE)’s collective decision to temporarily suspend cinema operations from November, he opined that the event could impact the rental income and footfall of 12 retail malls across M-REITs under his coverage: IGB REIT, KLCCP Stapled Group, Sunway REIT and CapitaLand Malaysia Mall Trust.

The opening of Pavilion REIT’s new cinema could also be delayed, he added.

“Cinemas roughly occupy 1-6% of the total net lettable area of individual retail malls. Key operators are GSC Cinema and TGV Cinemas,” he said.

Sharizan retained his "neutral" stance on REITs, with longer lead times for replacement tenants a new and emerging risk for selected malls.

“Robinson’s drop-out and cinema shutdowns would temporarily dent earnings but we believe IGB REIT’s post-CMCO recovery prospects are intact; we keep our 'add' call.

“On the bright side, Axis REIT remains relatively insulated from the negatives facing the retail sector; we reiterate our 'add' call,” he said.  

At midday break, IGB REIT rose 1 sen or 0.61% to RM1.64, while Axis REIT increased 3 sen or 1.47% to RM2.07.

Edited BySurin Murugiah
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