THERE is no denial that tenant drop-out will remain an emerging risk for most retail mall owners in the near future.
Preliminary assessment by CGS-CIMB Research on retail malls since the reinstatement of the conditional movement control order (CMCO) is pointing to expectations of (i) a decline in footfall and tenants sales by 20-30% in 4Q 2020F, and (ii) concerns about potential tenant drop-outs could grow if the deterioration in tenant sales is prolonged.
Recall that Robinson Co (Malaya) Sdn Bhd has recently begun the liquidation process of its two stores in Malaysia, of which the tenancy drop-out for Robinson’s outlet in The Gardens Mall will negatively impact IGB Real Estate Investment Trust (REIT).
While potential tenancy cut-off and settlement terms remain unknown, CGS-CIMB Research expects the estimated 3.4% negative impact on IGB REIT’s FY2021F revenue and 3.8% negative impact on its FY2021F net property income (NPI) 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 FY2021F are in the negotiation stage and are more likely to favour tenant retention although this may be at the expense of positive rental reversion,” wrote analyst Sharizan Rosely in a sector update.
Likewise, CGS-CIMB Research also opined that the temporary shutdown of cinemas is a short-term blip for now. To recap, the Malaysian Association of Film Exhibitors has collectively decided to temporarily suspend cinema operations from November in light of the recent CMCO implementation coupled with a lack of new movie releases in the short-term.
“Cinemas roughly occupy 1-6% of the total net lettable area of individual retail malls,” projected the research house.
All-in, CGS-CIMB Research retained its “neutral” stance on REITs with anticipation of longer lead times for replacement of 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, hence we keep our ‘add’ call (on the REIT),” noted the research house.
“On the bright side, Axis REIT (also maintained ‘add’ call) remains relatively insulated from the negatives facing the retail sector.” – Nov 3, 2020
