Service tax hike and high value tax implementation to weigh on consumers’ sentiment, says CLMT

• CLMT concluded its FY2023 with a set of a strong financial performances, with its net property income (NPI) surging 42.55% to RM217.41 million, from RM152.51 million in FY2022, due to improvement in gross revenue from its existing retail assets.

KUALA LUMPUR (Jan 30): The imminent service tax hike and the implementation of luxury goods tax this year could weigh on consumers’ sentiment, but the impact is yet to be seen for CapitaLand Malaysia Trust (CLMT), said the trust’s chief executive officer Tan Choon Siang.

“Logically, we expected [consumers’ sentiment to weaken], but it (the service tax hike and luxury goods tax) has yet to be implemented, so we have not seen it (the impact) on the ground. So far, our numbers are still very healthy in terms of our visitors’ footfalls,” Tan told reporters at a briefing on Tuesday, after CLMT released its financial results.

As announced by Prime Minister Datuk Seri Anwar Ibrahim during the Budget 2024 presentation in October last year, service tax will be increased to 8% from the current 6% rate, starting March this year, while high value goods tax will be imposed at between a 5% and 10% rate, starting May.

While the impact from the increase in service tax, as well as the high value goods tax implementation are yet to emerge, competition in the retail space is set to intensify, following completion of the Warisan Merdeka Mall @ 118 and Pavilion Damansara Heights Phase 2, said Tan.

The interest rate environment, meanwhile, continues to be a key concern in the retail market, as persistently high interest rates prompt a cautious spending sentiment among consumers, he added.

In view of these challenges, Tan said CLMT will focus on improving its assets’ performances by balancing between healthy occupancy rates and rents, as the trust aims for organic growth.

The trust will optimise its tenant mix and retail space usage, as well as deploy tactical marketing campaigns and events to drive footfall to its complexes.

CLMT will also ensure close engagements with its tenants, to ensure tenant retention, he added.

CLMT expects mid-to-high single digit growth in rental reversion for retail segment

Overall, Tan is expecting a mid-to-high single digit growth in its rental reversions for its renewal leases for the financial year ending Dec 31, 2024 (FY2024).

CLMT’s retail portfolio recorded an improved occupancy of 91.7% as at Dec 31, 2023 (4QFY2023), up from 84.3% a year ago, and a positive rental reversion of 7% in FY2023.

His confidence on positive rental reversion this year is based on overall improving sentiments, with key performance indicators like shopper traffic and tenant sales.

“Some leases are relatively lower rental rates and are coming up for renewal, posing opportunities to adjust upwards,” he explained.

As for the industrial sector, Tan said it remains resilient with positive growing potential, mainly leveraging on the anticipated expanding manufacturing and e-commerce markets.

As such, he said part of the trust’s asset management is exploration of yield-accretive investment opportunities in new asset classes, particularly industrial assets.

CLMT concludes FY2023 with NPI surging 43% on record-high gross revenue

CLMT concluded its FY2023 with a set of a strong financial performances, with its net property income (NPI) surging 42.55% to RM217.41 million, from RM152.51 million in FY2022, due to improvement in gross revenue from its existing retail assets, and contribution from the Queensbay Mall following completion of the Penang mall’s acquisition last year.

Gross revenue for FY2023 increased 43.35% to RM395.39 million, from RM275.82 million previously, due to higher occupancy and positive rental reversions.

For the fourth quarter ended Dec 31, 2023 (4QFY2023), the trust reported a 54.43% jump in its NPI to RM63.02 million from RM40.8 million in the corresponding quarter in FY2022, as it reported stronger revenue.

Its gross revenue climbed 57.5% to RM108.51 million in 4QFY2023, from RM68.9 million previously.

CLMT declared a final income distribution per unit (DPU) of 2.24 sen, payable by March 2024. This will raise its total DPU for FY2023 to 4.17 sen, from FY2022’s 4.01 sen.

For FY2023 as a whole, the trust reported a distributable income to unitholders of RM109.83 million, which went up by 25.5% from RM87.49 million in FY2022.

On Tuesday, units of CLMT settled 0.5 sen or 0.87% lower at 57 sen, valuing the trust at RM1.56 billion.

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