Tenant drop-out an emerging risk for malls

KUALA LUMPUR: The permanent closure of the remaining two branches of departmental store Robinson in Malaysia has highlighted that the risk of tenant drop-out in retail malls is higher for departmental stores, according to CGS-CIMB Research analyst Sharizan Rosely.

In his recent market report dated Nov 3, 2020, he noted that anecdotal events in October point to the potential shutdown of certain departmental stores, which have been negatively affected by falling footfall and tenant sales.

Sharizan added that the tenancy drop-out for Robinson’s outlet in The Gardens Mall will negatively impact IGB Real Estate Investment Trust (IGB REIT). However, he believed that the damage is manageable. 

While potential tenancy cut-off and settlement terms remain unknown, the estimated 3.4% negative impact on FY21 revenue and 3.8% negative impact on FY21 net property income 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 from other non-anchor tenants as tenancy renewals for FY21 are in the negotiation stage and are more likely to favour tenant retention, although this may be at the expense of positive rental reversion,” he said.

Meanwhile, Sharizan commented that the temporary shutdown of cinemas suggested that the decline in footfall or tenant sales in October during the conditional movement control order (CMCO) period has a greater impact on non-essential tenants. 

“Cinemas roughly occupy 1% to 6% of the total net lettable area of individual retail malls. Robinson’s drop-out and cinema shutdowns would temporarily dent earnings but we believe IGB REIT’s post-CMCO recovery prospects are intact,” he added.

This story first appeared in the EdgeProp.my e-Pub on Nov 6, 2020. You can access back issues here.

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