Singapore REITs Monthly - Phillip Securities 2020-03-13: Not All REITs Are Built Equal

Singapore REITs Monthly - Phillip Securities Research | DASIN RETAIL TRUST (SGX:CEDU) EC WORLD REIT (SGX:BWCU)

Singapore REITs Monthly - Not All REITs Are Built Equal

  • The FTSE S-REIT Index fell 109pts m-o-m to 853pts, erasing gains accumulated since May19. Correspondingly, the dividend yield and yield spread expanded 19bps (+15.3%) and 63bps (+25.7%) m-o-m to 4.73% and 3.06%.
  • Total returns for hospitality (-19.3% m-o-m) and retail (-7.7% m-o-m) sectors most impacted by Covid-19 as funds fled to more the more resilient industrial sector (-3.6%).
  • Sector yield spread at in positive territory at 0.6 standard deviation (s.d.) after being in the -1.0 to -2.0 s.d. range throughout 2019.
  • Following the emergency Fed rate cut of 50bps to 1.25% on 3 March 2020, the SOR fell to 0.82% on 6 March. The 80bps fall in the 10YSGS was more pronounced, ending at 1.22% while the 10YSGS fell 47bps to 1.2%, surpassing the lows seen in 2012.
  • Remain NEUTRAL on S-REITs sector. Sub-sector preferences: Office and Industrial.


  • Fear spread quickly since the first case of Covid-19 hit Singapore’s shores on 23 January. The weaker consumer sentiment was most pronounced in February when Singapore upgraded the DORSCON level to Orange on 7 February 2020. Not surprising, hospitality counters were the hardest hit with MTD losses ranging from -10.8% to -34.5%. The average decline was -19.3%. The retail sector was the second worst hit with MTD losses averaging -7.7%, weighed down by China-focused REITs, ranging -7.6% to -12.1% for CapitaLand Retail China Trust (SGX:AU8U), Sasseur REIT (SGX:CRPU), Dasin Retail Trust (SGX:CEDU) and BHG Retail Reit (SGX:BMGU).
  • The 50bps Fed rate cut on 3 March 2020 brought on by the Covid-19 epidemic would have been a tailwind for the REITs sector. However, weaker market sentiment prevailed and the rebound from the Covid-19 sell down was short lived. Caution and lower valuations halted the momentum in REIT acquisitions, which will likely resume in late 2020.
  • United Hampshire US REIT (SGX:ODBU) debuted on the SGX on 12 March 2020 with a portfolio of 17 US grocery-anchored shopping centres and self-storage assets. The 80.3mn units available for subscription was 3.2 times subscribed.


  • The impact on Singapore’s’ retail malls was varied. At the peak of the panic in the first two weeks of February, footfall at central malls fell by 50%. Sub-urban malls were less impacted, with footfall falling by 10-20% during the same period. Mall operators Frasers Centrepoint Trust (SGX:J69U) and CapitaLand Mall Trust (SGX:C38U) have reported footfall recovering to -5% pre-Covid-19 levels in the second half of February 2020. Similarly, we expect the tenant sales at sub-urban malls to show less variance as compared to their central counterparts due to the necessity spending at sub-urban malls.
  • While turnover rent only accounts for 5% of revenues for CapitaLand Mall Trust and Frasers Centrepoint Trust, the extent of rental reliefs and rebates, discounted rates on the booking of atrium spaces and extended hours of free parking will have marginal impact on the REITs.


  • Preliminary industry-wide occupancy figures for hotels for February was estimated between 30% to 70%, averaging 50%. However, hotels which have a higher exposure to longer-staying corporate clientele such as service residence (SRs) experienced stable occupancy of c.70% and will hold up better against their hotel peers.
  • Some hospitality REITs are exploring the possibility of accelerating their AEI and repair and maintenance timelines to coincide with the lull period, thereby future-proofing their portfolios and commanding better room rates in time for the pickup post-Covid-19.
  • It is worth noting that while the hospitality sector would be the most affected, most SG-listed hospitality REITs (except ARA US Hospitality Trust (SGX:XZL)) have revenue structures with at least 50% of revenue from “stable” sources, either through assets that are leased out on master leases or though leases with minimum base rent provisions.


Remain NEUTRAL on the S-REITs sector, with selective sub-sector preferences.

Top-down view (unchanged)

  • We like the Commercial and Industrial sub-sectors due to tapering commercial supply after the surge in supply in the prior two to three year, and the AEI and redevelopment opportunities for the Industrial sector. We are cautious on the Hospitality and Retail sub-sector due to softer tourism sentiment and retail outlook, exacerbated by the fluid Covid-19 situation.

Tactical bottom-up view (unchanged)

  • REITs that can better weather through this period of uncertainty would be those with:
    1. Higher percentage of guaranteed revenue through “fixed” or “stable*” leases;
    2. Low gearing;
    3. High-interest coverage;
    4. Long weighted average debt to maturity; and
    5. A high proportion of debt on fixed interest rates.
  • See attached PDF report for S-REITs peer comparison table.

Natalie Ong Phillip Securities Research | 2020-03-13