How does MCO impact different REIT sectors uniquely?

Question

Accepted Answer

The Movement Control Order Presents Distinct Opportunities and Challenges Across REIT Sectors

The Movement Control Order (MCO) is poised to create specific buying opportunities within the real estate investment trust (REIT) sector, with varied impacts on different sub-sectors. While some REITs are trading at a significant discount to their net tangible assets, suggesting potential value for investors, others, particularly within the hotel industry, face considerable headwinds. Axis REIT Managers Bhd, for instance, is actively seeking new assets, allocating RM400 million for acquisitions this year, indicating a proactive approach to capitalizing on market conditions.
Understanding Real Estate Investment Trusts and Net Tangible Assets

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate. These trusts are often compared to mutual funds for real estate, allowing individuals to invest in large-scale, income-producing properties. Net Tangible Assets (NTA) represent a REIT's total assets minus its intangible assets (like goodwill) and liabilities, divided by the number of outstanding shares. A REIT trading at a discount to its NTA, such as some currently observed at 50 per cent of their NTA, suggests that the market value of its underlying assets is lower than their book value, potentially signalling an attractive entry point for investors.
Industrial and Logistics REITs Benefit from E-commerce Growth

The industrial REIT sector, in particular, has experienced robust growth driven by the escalating demand from international e-commerce players. This trend was evident in 2018-2019, with new market entrants, many originating from Singapore, actively seeking industrial spaces. The demand has outstripped supply, leading these players to acquire significant space across key Malaysian economic hubs like the Klang Valley, Penang, and Johor. Furthermore, the burgeoning food delivery platforms have created a strong and growing demand for central kitchen facilities, further bolstering the prospects for industrial and logistics-focused REITs.
Hotel REITs Face Divergent Fortunes Based on Star Rating

The impact of the MCO and the subsequent recovery is expected to be bifurcated within the hotel REIT sector. Three-star and below hotels are anticipated to benefit from a recovering domestic tourism market. This recovery is partly supported by government initiatives, such as the personal income tax relief of up to RM1,000 for domestic tourism spending announced under Budget 2020. Conversely, four-star and five-star hotels are projected to struggle with low occupancy rates, indicating a more challenging outlook for these higher-tier establishments in the immediate post-MCO period.
Tenant Relief Measures and Landlord Negotiations

The adverse economic impact of the MCO has led to widespread requests from tenants for rental discounts and deferment of payments. In response, landlords are actively negotiating with their tenants, offering rental discounts that range from 20 per cent to 50 per cent. In some instances, landlords are also providing rent payment deferment for affected tenants, typically for a period of one to three months. This period of negotiation and compromise highlights the dynamic relationship between property owners and their commercial tenants during times of economic uncertainty.

Reading history

Hide →

This history is cleared when the page is closed.

How does MCO impact different REIT sectors uniquely?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends