MREIT managers cautious on shopping malls' rental outlook - Affin Hwang

KUALA LUMPUR (April 15): Malaysian Real Estate Investment Trust (MREIT) managers are cautious on shopping malls’ 2020 rental outlook and are cautious on the REITs’ 2020 earnings outlook due to uncertainties over COVID-19, the Movement Control Order (MCO) and the domestic economy, said Affin Hwang Investment Bank Bhd.

The research firm said managers’ decision-making on the scope and scale of rental assistance as well as rebate schemes is taking longer than expected due to the heightened uncertainties, including the duration of the MCO and the post-MCO consumer sentiment.

“To recap, we had incorporated an eight percent year-on-year decline in the shopping malls’ 2020 base rent and assumed they will receive no turnover rentals for 2020,” it said.

Looking ahead, Affin Hwang estimates that every four percent change in the shopping malls’ base rent will affect the diversified MREITs’ 2020E earnings by one to four percent and the retail MREITs’ 2020E earnings by six to eight percent.

Affin Hwang also expects warehouse, logistics and office rentals to soften by two to seven percent year-on-year in 2020.

“The ensuing weak economic growth and difficult business environment should affect their 2020-22 rental growth.

“For offices, an MREIT manager cautioned that these events may affect the upcoming rental reversions, as businesses are generally not doing well now and it may take a while before business activities recover to the pre-COVID-19 level,” it said.