KUALA LUMPUR: Malaysian real estate investment trusts (MREIT) are expected to report a steep 14% decline in earnings per unit in 2020 due to the challenges posed by Covid-19, says Affin Hwang Capital research.

"We are cutting the MREITs’ FY20-22E EPU by 3-14%," it said in a Monday report.

The research house added that a recovery was expected in 2021 although the challenging business outlook and unexciting distribution yield of 5.6% has led it to downgrade the sector to neutral from overweight.

Retailers in Malaysia that are not categorised as essential services have been ordered by the government to close for two weeks under the movement control order.

For retailers offering essential supplies and services, the research house expects to see lower spending during this period.

The research house expects the shopping mall owners and Malaysia Shopping Malls Association to offer some rental rebates on a case-by-case basis.

"We have cut our earnings forecasts for all retail-REITs under our coverage, incorporating minimal turnover rent for 2020 and c.4% rental rebates for the year," it said.

Meanwhile, hotels are not accepting new customers between March 18 to 31 and are undertaking various strategies such as operational downsizing and manpower right-sizing.

Affin Hwang expects the hospitality REITs to only achieve the minimum rental guaranteed under their master leases.

These would include YTLREIT's Malaysia operations and Sunway REIT.

Those without master leases such as KLCC Stapled Group's Mandarin Oriental, hotels are expected to achieve operating breakeven for 2020.

Affin Hwang also expects the slump in global equity markets and commodity prices to affect the rental growth of asset owners of offices, warehouses and logistics.

"For leases expiring in 2020-21, we now expect the rental to contract by -2% to -5% (from 0% to 2% growth)," it said.

Affin Hwang has slashed YTLREIT's price target by 29% and another five MREITs under its coverage by 10% to 15%.

It maintained its hold call on IGBREIT, PREIT, SREIT and YTLREIT while downgrading KLCCSS and AXRB to hold from buy previously.