Al-Salam REIT is a REIT based in Malaysia with a diversified portfolio. They were listed in the Bursa Malaysia market on September 2015. Starting with 31 properties in 2015, Al-Salām REIT has expanded its portfolio to 54 properties across Malaysia comprising 3 retail malls, an office building, 43 Food & Beverage restaurants and 7 Food & Beverage Non-Restaurant assets.
FY20 is a challenging year with the uncertainty of the COVID-19 outbreak. Businesses and the economy are impacted one way or another. In this post, we will look at Al-Salam REIT FY20 and 1H21 performance to see how it has performed.
1. Overall decline in occupancy rate in FY20
| FY18 | FY19 | FY20 | |
| Retail Segment | |||
| – Komtar JBCC | 95% | 60% | 57% |
| – @Mart Kempas | 99% | 99% | 96% |
| – Mydin Gong Badak | 96% | 100% | 100% |
| Office Segment | |||
| – Menara KOMTAR | 90% | 89% | 86% |
| F&B Restaurant | |||
| – Various properties | 22 (100%) | 38 (100%) | 43 (100%) |
| F&B Non-Restaurant | |||
| – Various properties | 5 (100%) | 6 (100%) | 6 (100%) |
| – Malaysian College of Hospitality & Management | 100% | 100% | 100% |
The occupancy rate of Al-Salam REIT has overall declined in FY20. Komtar JBCC which is located close to the border of Singapore has seen a huge drop in occupancy rate declining from 95% in FY18 to 57% in FY20. This is probably due to their huge reliance on Singaporean’s consumers which have been affected by the border closure. Given that Komtar JBCC accounts for a huge proportion of Al-Salam REIT, this will no doubt impact Al-Salam REIT overall performance.
Having said that, its F&B assets which are mainly leased to QSR Group of companies continue to report a 100% occupancy rate.
2. Decline in financial performance in FY20
| MYR in 000s | FY18 | FY19 | FY20 |
| Revenue | 82,151 | 94,912 | 86,101 |
| Net Property Income | 58,245 | 69,121 | 64,970 |
Financial performance has likewise declined in FY20. While the addition of Mydin Gong Badak has boosted the overall financial performance, the huge decline in Komtar JBCC performance has resulted in the overall drop in performance. This is as a result of the overall drop in occupancy rate in FY20 mainly driven by the COVID-19 uncertainty.
The positive aspect however is boost by the overall addition of the F&B assets which were newly acquired during the year.
3. Continual decline in distribution per unit in FY20
| FY18 | FY19 | FY20 | |
| DPU (Cents) | 5.4 | 4.8 | 2.1 |
Looking at Al-Salam REIT FY20 distribution, it has been on a declining trend from 5.4 cents in FY18 to 2.1 cents in FY20. This decline is due to the overall drop in both financial and operational performance mainly impacted by Kontar JBCC performance.
Read More: Why you should never buy a REIT just because they have a high dividend yield
4. Increased in gearing level in FY20
| FY18 | FY19 | FY20 | |
| Gearing (%) | 44% | 48% | 51% |
As at 31 December 2020, Al-Salam REIT has a total borrowings of MYR 634 million. This translates to a gearing of 51% in FY20. While this is still below the permissible limit, the gearing has been increasing year on year. Definitely an area to keep a close lookout on.
Of its total loan, 100% of it is variable in nature. This can be both beneficial and adverse to a REIT. The downside of variable loans is that they are subject to interest rate risk. The positive aspect, on the other hand, is that a cut in interest rate would be favorable to them which is what they are experiencing at the moment
Read More: How does Interest Rate Affect REITs
5. Performance in 1H21 continues to decline
Based on the recently released report, the net income had declined from MYR 34.5 mil in 1H20 to MYR 27.9 mil in 1H21. This decline is mainly contributed by the performance of the retail segment which not only impact Al-Salam REIT, but the industry as a whole.
From a segmental perspective, its retail segment net property income has declined from MYR 18.6 mil in 1H20 to MYR 11.7 mil in 1H21. This represents a 37% drop in overall performance.
Summary
Based on our overall analysis, the performance of Al-Salam REIT has been impacted by its retail segments driven by the uncertainty of the COVID-19 pandemic. While its F&B assets performed relatively okay, the retail segment remains as a huge contributor. From a forward-looking perspective, we would expect Al-Salam’s performance to continue to decline at least for the short to medium term.
What are your thoughts on Al-Salam FY20 and 1H21 performance? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.
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