KUCHING: The new government’s 14th General Election (GE14) manifesto is a catalyst for a recovery in consumer spending which reduces occupancy risks at the malls, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) observed in its latest Malaysia Real Estate Investment Trusts (REITs) report.
According to Maybank IB Research, Pakatan Harapan’s (PH) promise to address the cost of living issues within 100 days (by replacing the Goods & Services Tax with the narrower Sales and Services Tax, introducing fuel price stabilisation and increasing the minimum wage) is positive for consumer sentiment and should provide the lift in spending.
“Note that the Malaysian Institute of Economic Research (MIER) Consumer Sentiments Index (CSI) level has been below the threshold level of confidence since the third quarter of 2014 (3Q14),” the research arm said.
“As spending power rises, we believe this would be marginally positive for REITs with retail malls as higher consumer spending could translate into higher percentage rent/turnover rent.”
This generally contributes about three to five per cent of total rental income, it further noted.
Nonetheless, the research arm maintained its earnings forecasts for all REITs for now.
Meanwhile, Maybank IB Research continued to expect the central bank’s monetary policy to remain supportive of economic growth post GE14.
The research arm’s house view remained that the Overnight Policy Rate (OPR) would be unchanged for the current year after a 25-basis points (bps) hike on January 25, 2018.
The impact of a 25bps rise is a negative 0.5 per cent to REITs’ earnings on a full-year basis, Maybank IB Research said.
Maybank IB Research noted that for those under its coverage, circa 38 per cent of the REITs’ total debt is on floating rate structure at end-current year 2017 (CY17).
The research arm further noted that with REITs’unit prices down an average 14.5 per cent in 2018 year to date (YTD), it would suggest that the market has priced in a higher than 25bps rise in the OPR for the year.
“Without the prospect of further interest rate hike in 2018, it could also encourage the acquisition of assetsby the REITs.”