Retail REITs continue to be hurt by pandemic, lockdown measures
KUALA LUMPUR: Retail real estate investment trusts (REITs) continue to be hampered by the Covid-19 pandemic and measures to reduce its spread, as can be seen by the performances by two major sector players, Pavilion REIT and KLCC Stapled Group.
KLCCP Stapled Group saw its core net income for its financial year 2020 (FY20) coming within expectations of RM628.4 million came in within expectations, meeting 102 and 99 per cent of MIDF Amanah Investment Bank Bhd (MIDF Research) and consensus full year estimates respectively.
“Sequentially, 4QFY20 core net earnings was marginally lower at RM154.4 million, in line with lower revenue. The weaker earnings were mainly due to reimposition of the conditional movement control order (CMCO) which impacted the earnings of retail and hotel divisions,” it said in its review.
KLCC Stapled Group’s profit before tax (PBT) for its retail division was lower by 13.3 per cent q-o-q at RM64.9 million due to lower shopper footfall. Similarly, hotel division recorded steeper pre-tax loss of RM18 million in 4QFY20 compared to pre-tax loss of RM16.3 million in 3QFY20 due to interstate travel restrictions.
On a yearly basis, 4QFY20 core net income was lower by 18.6 per cent y-o-y at RM154.4 million, bringing FY20 core net earnings to RM628.4 million. The decline in earnings by 14.6 per cent was mainly due to lower contribution from retail and hotel divisions as they were hit by Covid-19 pandemic.
“PBT of retail division shrank by 26 per cent y-o-y mainly due to rental assistance to tenants and lower shopper footfall. Similarly, performance of hotel division was weak in FY20 as it recorded pre-tax loss of RM63 million in FY20 against PBT of RM0.7 million in FY19 due to travel restrictions and border closures,” it continued.
“On the other hand, rental income of office division was fla ish, backed by triple net lease agreements and long-term leases.”
As for Pavilion REIT, its FY20 core net income of RM116.7 million came in above expectations, making up 112 and 108 per cents of MIDF Research and consensus full year estimates respectively.
The positive deviation could be attributed to the lower-thanexpected maintenance expenses in 4QFY20.
“Sequentially, 4QFY20 core net income improved by 25 per cent q-o-q RM40 million mainly due to lower maintenance expenses. We understand that the lower maintenance expenses were due to reversal of provision for maintenance expenses in 4QFY20.
“On yearly basis, 4QFY20 earnings were lower by 33 per cent y-o-y, bringing total earnings to RM116.7 million which is a 52.9 per cent drop yo-y. The lower earnings were mainly dragged by rent rebates given to tenants during MCO and CMCO.”
Meanwhile, net property income (NPI) of Pavilion KL fell by 33.8 per cent y-o-y while NPI of Elite Pavilion KL eased by 52.1 per cent y-o-y. Meanwhile, Intermark Mall recorded lower NPI while DA MEN recorded losses of RM11.2 million.
Besides, the lower earnings were also owing to lower turnover rent income and advertising revenue which partially cushioned by lower utilities and maintenance expenses.
“We expect outlook for retail division to be challenging in 1QFY21 due to imposition of MCO 2.0,” MIDF Research continued. “Shopper traffic is expected to be low due to interstate travel restriction and rising Covid-19 cases in Malaysia which may prompt mall operator to offer rental assistance to tenants. “Similarly, outlook for hotel divisions remains bleak in FY21 as borders remain closed. Hence, we expect hotel division to remain the red in FY21.”