AL-SALAM REIT ANNUAL REPORT 2020

09 ANNUAL REPORT 2020 LETTER TO STAKEHOLDERS OVERVIEW OF THE MACRO OPERATING ENVIRONMENT FY2020 was a uniquely challenging year as the COVID-19 pandemic had a major disruptive effect, not just in Malaysia, but across the world. Globally, the spread of the virus had brought many businesses and industrial sectors to a standstill through the imposition of lockdowns to contain the spread of the virus. The lockdowns also affected the daily lives of people across the world including regular consumption patterns. Cumulatively, the impact on people and businesses have led to significant disruptions in global and national economic growth. In FY2020, the global economy shrunk by 4.4% compared with a contraction of just 0.1% in 2009, when the world underwent the subprime crisis. In Malaysia, the imposition of the first MCO in mid-March 2020 had a telling effect not just on the populace, but also on a wide range of businesses and industries. The strict MCO was eventually replaced with less restrictive Conditional and Recovery MCOs that allowed for some level of regular retail activities. However, the stringent SOP requirements, such as reduced number of customers, reduced operating hours, mandatory social distancing and other requirements continued to impact retailers and overall economic activity across a wide range of business sectors. Shopping centres and retailers were not able to operate at full capacity, compared to the pre-COVID-19 period. Footfall at shopping malls had dropped significantly. While the subsequent Conditional and Recovery MCOs were less restrictive and allowed a certain degree of resumption in regular retail activities, the apprehension among consumers to revert to their normal consumption habits such as dining, shopping and more, remained muted in FY2020. The proliferation of eCommerce during FY2020 was another factor as consumers chose to use multiple digital platforms for their shopping as opposed to conventional, physical shopping. Reduced take-home pay during the period for many consumers due to having loss jobs or pay cuts had also curtailed purchasing power. Consequently, Malaysia’s gross domestic product (GDP) saw negative growth of -4.5 % in FY2020. This deficit was attributed to three consecutive contractions in quarterly economic performance with the second quarter of FY2020 alone posting a 17.1% contraction. The third and fourth quarters of FY2020 saw contractions of -2.7% and -6.4% respectively. As mentioned earlier, the first MCO has severely impacted retail growth. This was compounded by the third-wave of the COVID-19 pandemic and the second conditional movement control order (CMCO) FY2020 both which occurred in the 4th quarter of FY2020. These developments had dampened the recovery momentum, leading to continued negative growth for the retail sector. The retail sector in particular declined by 15.8 % in FY2020. All retail sub-sectors, except for other specialty retail stores, reported declining sales in FY2020. This included the department store cum supermarket sub-sector, which recorded a negative growth rate of 6.2%. Retail sales of the supermarket and hypermarket sub-sector dropped by 15.1%. PROACTIVE BUSINESS RESPONSE TO THE OPERATING ENVIRONMENT The Manager has been swift in implementing various measure in response to ensure business and operational sustainability in FY2020 given the pandemic impact on the Fund’s retail exposure. The Manager was quick to support retailers with a wide range of financial incentives. The focus was on retaining tenancy occupancy rates, especially with proven, long-term tenants who have been reputable paymasters. Forms of assistance provided included rental rebates, deferred payment schemes and discounts or waivers on rentals on a case-by-case basis. The support provided commensurate with the respective tenants’ financial performance towards enabling them to sustain their operations in FY2020.