Singapore REITs - OCBC Investment 2020-02-19: Budget Goodies To Mitigate COVID-19 Woes

Singapore REITs - OCBC Investment Research | SGinvestors.io SUNTEC REAL ESTATE INV TRUST (SGX:T82U) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) CAPITALAND MALL TRUST (SGX:C38U)

Singapore REITs - Budget Goodies To Mitigate COVID-19 Woes




Announced Budget 2020 tax rebates a positive for S-REITs

  • Years of financial prudence by the Singapore government can now be put to good use, as Minister for Finance Mr. Heng Swee Keat announced a string of measures to help support the economy, which would result in an overall FY2020 budget deficit of S$10.9b, or 2.1% of GDP (click here for our Investment Strategy report (PDF)). One of the measures includes a corporate income tax rebate of 25% for companies, capped at S$15k, for Year of Assessment 2020. This will benefit all tax paying companies.
  • Although this will not benefit S-REITs directly as they are granted tax transparency if they distribute at least 90% of their taxable income to unitholders, there would be an indirect benefit as their tenants would enjoy the income tax rebates, and this will help to support their cashflows.
  • A property tax rebate of 15% will also be provided to qualifying commercial properties (food services and retail business related) for the year 2020, and Minister Heng has urged landlords to pass this on to tenants. There have been increasing calls by the Singapore Retailers Association for landlords to provide rental concessions to retailers amid the COVID-19 outbreak. Given this announced tax rebate, we are expecting most or all of the rebates to be passed on by retail REITs to their tenants.
  • From our channel checks, Frasers Centrepoint Trust (SGX:J69U) [HOLD; FV: S$2.93] would likely provide some forms of rent reduction to tenants and are working on the details. Additional measures may also be provided on a targeted approach basis.
  • Our preferred retail REIT is CapitaLand Mall Trust (SGX:C38U) [BUY; FV: S$2.90]. We expect management to pass on the full property tax rebate to its tenants.
  • We note that for Frasers Centrepoint Trust and CapitaLand Mall Trust, property taxes formed 9.7% and 9.3% of their FY19 gross rental incomes, respectively.


Hospitality sector, which has bore the brunt of COVID-19, to get strong assistance from the government

  • The hospitality industry has been one of the worst hit sectors during this ongoing COVID-19 outbreak, and thus it was unsurprising that Budget 2020 placed strong emphasis to provide assistance. A property tax rebate of 30% for the year 2020 will be granted to licensed hotels and serviced apartments (accommodation and function room components), as well as prescribed Meetings, Incentives, Conventions, and Exhibitions (MICE) venues.
  • We believe Far East Hospitality Trust (SGX:Q5T) [HOLD; FV: S$0.65] and CDL Hospitality Trusts (SGX:J85) [BUY; FV: S$1.62] are likely to enjoy the most benefits given that Far East Hospitality Trust is a pure play on Singapore hospitality and CDL Hospitality Trusts has a significant presence in Singapore (62% by FY19 NPI).
  • However, Ascott Residence Trust (SGX:HMN) [BUY; FV: S$1.40] remains our top hospitality pick as we like Ascott Residence Trust’s defensive, geographically diversified portfolio, given the still uncertain outlook.
  • Besides hospitality REITs with significant Singapore exposure, Suntec REIT (SGX:T82U)’s [BUY; FV: S$2.05] convention business (16.8% of FY19 gross revenue) will also be a beneficiary of this initiative.


Some support for consumption spending

  • Minister Heng also announced that previously highlighted plans for the GST to increase by 2 ppt to 9% sometime from 2021 to 2025 will no longer take effect in 2021. This means that GST will remain at 7% in 2021. Although this deferment will not be put off indefinitely, it will at least help to negate the negative impact from a hike in GST on consumption spending in the near term.
  • The government also plans to support Singaporeans during current uncertain times, with a Care and Support Package announced. Singaporeans aged 21 and above will receive a one-off cash payout of S$100-S$300, while every adult Singaporean with at least one Singaporean child (aged 20 and below) will receive a further S$100 cash payout. Although it is difficult to quantify how much of this will be spent in shopping malls, we can still expect some support for the retail market.
  • Overall, we see CapitaLand Mall Trust [BUY; FV: S$2.90] as a laggard play; our other top S-REIT picks are Ascendas REIT (SGX:A17U) REIT [BUY; FV: S$3.59] and Suntec REIT [BUY; FV: S$2.05].
  • See attached PDF report for details of property tax rebate announced during Budget 2020.





OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-02-19
SGX Stock Analyst Report BUY MAINTAIN BUY 2.050 SAME 2.050
BUY MAINTAIN BUY 3.590 SAME 3.590
BUY MAINTAIN BUY 2.900 SAME 2.900



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