IGB real estate investment trust (REIT), the owner of the Mid Valley Megamall and The Gardens Mall said the current sluggish economic and business conditions will result in a material adverse impact on its financial performance this year.
This is mainly due to the rental support programme and the potential increase in expected credit losses and possible impairment of fair value for its investment properties arising from the Covid-19 pandemic and resultant movement control order (MCOs).
Since the recovery MCO started on June 10, 2020, both Mid Valley Megamall and The Gardens Mall have seen an apparent, gradual, and cautious increase in footfall and vehicle traffic volume.
Notwithstanding the initial recovery indicators, the Manager of IGB REIT is monitoring the current economic and business situations closely and will take appropriate and timely actions to mitigate the impact on the REIT's operations and financial performance.
The REIT's net profit plunged 75 per cent to RM19.5 million for the second quarter ended June 30, 2020 (2Q20), from RM77.9 million recorded in the same quarter last year due to rental support provided to tenants and lower car park income arising from the Covid-19 pandemic and Movement Control Order (MCO).
Gross revenue fell 54 per cent to RM62 million compared to RM135 million a year ago.
IGB REIT recorded net property income at RM37.4 million, which was lower by 62.1 per cent compared to the corresponding quarter in 2019 of RM98.5 million.
"Despite the grim outlook and many challenges ahead, IGB REIT is determined to stay resilient throughout the Covid-19 pandemic," it said in an exchange filing to Bursa Malaysia yesterday.
IGB REIT said a valuation on Mid Valley Megamall and The Gardens Mall had been conducted by an independent registered valuer.
It said based on the valuation reports dated July 1, 2020, the market value of Mid Valley Megamall and The Gardens Mall as at June 30, 2020, remained at RM3.67 billion and RM1.3 billion respectively from the previous quarter.
Retail sales performance in the first half of 2020
Retailers and mall operators nationwide continue to see their retail sales plunge amid the Covid-19 pandemic.
Retail Group Malaysia's (RGM) April report on Malaysia's full-year retail sales growth forecast has been revised downwards to -5.5 per cent (or RM10.9 billion lower) against the performance in 2019 due to Covid-19 pandemic.
Total retail sales for 2020 are now expected at RM101.6 billion, compared to RM112.5 billion in 2019.
For the first quarter of 2020, the local retail industry recorded a negative growth rate of 11.4 per cent in retail sales, as compared to the same period in 2019.
The fear of virus pandemic had affected consumers' spending during the first two weeks of March 2020.
Members of the retailers' association project an average growth rate of -28.8 during the second quarter of 2020. This is worse than the projection made by RGM in April 2020 at -9.3 per cent.
The department store cum supermarket operators are expecting a dismay performance with a growth of -40.9 per cent for the second quarter of this year.
The department store operators are expecting the worst in their businesses with a growth rate of -62.8 per centy. Supermarket and hypermarket operators expect to remain in the red zone with a -14.8 per cent growth rate.
RHM said in a statement recently that in the event the MCO is lifted fully before October, local retailers should expect a recovery in their business.
For the fourth quarter of this year, retail sale is expected to decrease slightly by 1.5 per cent, it said.
The annual retail growth rate for Malaysia in 2020 is projected by RGM to be -8.7 per cent, as compared to last year.
It has been revised downwards from projection made in April at -5.5 per cent.