Slow recovery for Malaysian mall REITS, 15% retail shops to close down
By Charlotte Chong
KUALA LUMPUR, NNA - As the COVID-19 movement control order (MCO) started to ease in the beginning of May, people have been slowly trickling back to shopping malls in Malaysia.
But, as incomes have fallen drastically, they are not spending enough to prop up the whole retail sector.
Managing Director Tan Hai Hsin of Retail Group Malaysia, a retail industry research firm, lamented that it would take longer for spending to return to pre-crisis levels. Consumers did not rush to buy non-essential goods when shops reopened, he said.
“We did not get a V-shaped recovery. We are now going through a U-shaped recovery,” he told NNA in an email reply.
While the current 5 percent of shop closures at many shopping malls in the urban Klang Valley conglomeration does not seem alarming, there is cause for concern for the whole industry in the next six months, he warned.
Tan estimates that about 15 percent of retail businesses or at least 51,000 stores across the country will close down within the next six months.
He expects more closures after September. This is when the six-month moratorium given to businesses ends, so more would likely face problems paying their loans subsequently.
After the movement lockdown began on March 18, the government announced a six-month moratorium on loan repayments and restructuring of outstanding credit card balances for small and medium enterprises (SMEs) as well as individuals starting from April.
“In fact, closures have already started during the last 1.5 months," he said, adding that the crisis would "lead to the survival of the fittest".
Tan expects many cash-strapped small and independent retailers to wind up in the next three months.
He said the full-year forecast for retail could possibly be worse than a negative 5.5 percent since the phased easing of the lockdown would only end completely in August.
In April, the Retail Group Malaysia revised the earlier projected retail growth of 4.6 percent to negative 5.5 percent after the economic fallout from the coronavirus pandemic began to take its toll.
In fact, Malaysia’s retail industry contracted by 18.8 percent in the first quarter of the year, the biggest-ever contraction since the 1998 financial crisis.
Tan said businesses that had been dependent on foreign tourists and luxury goods retailers are the hardest hit and would not be able to recover this year. Regrettably, many are expected to fold up, he said.
They include those operating in famous shopping hubs such as KLCC and Bukit Bintang in Kuala Lumpur, theme parks like Genting Highlands and retail sections in international airports, he said.
A spokesman for Malaysia Retail Chain Association said mall tenants have reported a 30 percent drop in sales as shoppers are spending less time with them now. They would come in later or after 11am and would not stay beyond 8pm.
Like Tan, he expects independent or standalone shops such as those selling jewellery to face demise.
Help extended to businesses would not be able to keep all afloat because of the far-reaching, unprecedented impact of the global pandemic.
Some tenants have been given rental rebates of between 10 and 30 percent by 60 percent of mall operators in Malaysia, according to the spokesman.
Under the stimulus package by the government, landlords who reduce rents are eligible for tax deductions. However, some malls are not giving any rebates for fear of high losses, he added.
KIP REIT, which has a portfolio of seven properties including six KIPmalls and one AEON mall Kinta City in Ipoh, had dished out rental rebates amounting to 2.5 million ringgit ($585,000) for eligible tenants. It also exercised flexibility in collecting rent from small businesses.
The REIT expects certain sub-sectors such as theaters and department stores to face a more gradual decline this year.
“The impact on KIP Malls is softer as compared to other malls providing luxury goods. Our tenants mostly provide daily necessities,” Datuk Chew Lak Seong, managing director of KIP REIT Management Sdn. Bhd., told NNA in an email.
Its occupancy rate remained unchanged at 91.2 percent as of end-March when compared with half year ended December 2019.
“To mitigate our risks moving forward, we will look at a leasing strategy targeting to extend our tenant profile to daily goods which include food and beverage outlets,” Chew added.
On the flip side, there are buying opportunities to add new assets to its portfolio which now stands at 852.3 million ringgit, or about 1 percent of the total Malaysian REIT sector.
“We will not discount any attractive offers and are also exploring the types of assets that we could invest in for diversification,” he said. KIP REIT’s market capitalization stands at 404.2 million ringgit.
Hektar REIT, which had an almost similar occupancy rate of 91.3 percent in the first quarter, said it is still assessing the economic impact of the lockdown.
But it noted "some recovery in visitor traffic" after opening more than 88 percent of its businesses with more to follow suit in the coming weeks,” said Datuk Hisham Othman, executive director and CEO of Hektar Asset Management Sdn Bhd.
He told NNA that it is planning the recovery for most of its businesses in 2021.
He expects the rest of this year to be slow for businesses due to uncertainties on how the coronavirus contagion would evolve and whether there would be a vaccine to contain it.
Hektar REIT’s current market capitalization stands at 304.89 million ringgit with an asset base of 1.2 billion ringgit.
In a recent news report, UOB Kay Hian noted that the REIT industry in Malaysia is expected to recover gradually from the fourth quarter of this year while its earnings would recover only from next year.
It forecasts a contraction of 19 percent for the sector in 2020 but its earnings would jump 20 percent next year.
The investment banking company noted that offices were not adversely hit compared to retailers. It concluded that Malaysian REITs would still command attractive yields compared with fixed income instruments given the current low interest rate environment.