PETALING JAYA: Retail real estate investment trusts (REITs) are expected to commence recovery in the second half of this year, as the economy reopens in stages.
AmInvestment Bank in a research report yesterday said pent-up demand from the ongoing lockdown is also expected to boost recovery.
“We assume the country’s economy will reopen largely by the end of the year, which we believe is an opportune time to capture the year-end holiday season when people are most likely to spend.”
The research house said this is in line with assumptions that domestic footfalls will fully recover by year-end or even exceed historical peaks, as people are more likely to travel domestically while waiting for clarity on new regulations for international cross-border travel.“Apart from that, second half 2021 retail sales recovery will also be fuelled by pent-up consumer demand after the lockdowns, similar to what had happened in the past as consumers tend to revenge-spend and gather once movement restrictions are lifted.
“Based on the previous occasions when lockdowns were lifted, the malls under our coverage observed higher average sales per footfall. We believe earnings visibility and associated risks of REITs now are much better as compared to last year, thanks to the widening rollout of vaccines both locally and globally.”AmInvestment Bank said now would be an opportune time to collect quality assets.
“We believe the current lacklustre performance in retail REITs’ share prices offers investors a good opportunity to invest in quality retail REITs assets, whose property values have remained largely intact despite the pandemic.“Looking beyond 2021, we believe the recovery in international tourist traffic will further boost retail REITs’ earnings prospects.”For the retail REITs under its coverage, AmInvestment Bank said it takes comfort that average occupancy rates at the anchor malls remain healthy at above 90%, despite a slight decline observed as compared to pre-pandemic levels due to termination of tenancy contracts.
“However, this was quickly replaced by new tenants although the transition period took slightly longer than usual from delayed renovation works, due to the various movement restrictions in place.
The research house also said REITs are showing comfortable debt-to-asset ratios.
“In terms of financial health, the REITs under our coverage continue to maintain a comfortable debt-to-asset ratio of 22% to 42% compared with the regulatory threshold of 60% (which was temporarily raised from 50% until Dec 31, 2022 by the Securities Commission as a Covid-19 relief measure), which allows REITs to gear up for further acquisitions.
“We do not rule out potential acquisitions to materialise over the next 12 to 18 months for the REITs under our coverage with the emergence of yield-accretive assets, which could further drive inorganic growth over the medium to long term despite the short-term earnings headwinds.”