Singapore Retail Landlords - DBS Research 2020-03-25: In For A Rough Ride

Singapore Retail REITs - DBS Research  | SGinvestors.io CAPITALAND MALL TRUST (SGX:C38U) FRASERS CENTREPOINT TRUST (SGX:J69U) MAPLETREE COMMERCIAL TRUST (SGX:N2IU) STARHILL GLOBAL REIT (SGX:P40U) SPH REIT (SGX:SK6U)

Singapore Retail Landlords - In For A Rough Ride

  • Suspension of Entertainment and Leisure businesses till end April-20 will impact overall retail scene.
  • Retail landlords face operational uncertainties as malls cope with tighter measures (shorter operating hours and higher social distancing measures) or closures.
  • Affected businesses may seek more help and rebates in our view.
  • Sensitivity analysis: Our FY20F DPU estimates could drop by 4-13% (vs 2-4% previously) to factor in the impact of above measures.



COVID-19 updates: Stricter measures on retail malls and tenants to enforce social distancing will have a deeper impact on landlords.

  • New pre-emptive measures were announced by the government on 24 March following a spike in new COVID-19 cases in the past week.
  • There was a record of 54 new cases on Monday (23 March), shortly after Singapore announced the nation’s first two COVID-19 related deaths on 21 March.
  • In a bid to ensure social distancing to reduce speed of community spread, the government has imposed stricter operating measures that must be strictly adhered by retail malls and retail tenants.
  • Operators and tenants found to be non-compliant will incur penalties, which we suspect could be a revocation of operating licenses and/or fines.

From Thursday (26 March) to 30 April (with the potential for extension), the following measures have been imposed:

  • Bars, cinemas and all entertainment outlets to be closed; this includes night clubs, theatres and karaoke outlets,
  • All centre-based tuition and enrichment classes to be suspended,
  • Malls, museums and restaurants to reduce crowd density to no more than one person per 16 sqm of usable space,
  • Open atrium events to be disallowed within retail malls, with the exception of supermarket retailers, to disperse crowds,
  • All groups (outside of work) must not exceed 10 persons.

With the closure of Leisure and Entertainment outlets, foot traffic at malls will likely fall in the coming month.

  • While not all will be impacted, Leisure and Entertainment tenants will be the most impacted given the complete shutdown for a period of c.1 month. These tenants may seek further help (in terms of rental rebates, rental holiday) to assist in the affected month and beyond.
  • Restaurants likely to operate at 25-30% below full capacity following social distancing measures, which includes the zoning out of alternate seats, and inability to host groups above 10 people.
  • Museums and malls likely to see an even thinner crowd given the lack of tourist traffic, while subject to crowd density restrictions.
  • Centre-based tuition and enrichment classes may continue operations online and conduct e-learning instead of physical classes.
  • Retail malls will no longer be allowed to hold events within main atriums of retail malls.

Impact to various retail S-REITs:

  • CapitaLand Mall Trust (SGX:C38U) the most impacted with the revised guidelines but landlords generally not spared.
  • CapitaLand Mall Trust (4.9% sector exposure by GRI), Frasers Centrepoint Trust (SGX:J69U) (2.9%) and Mapletree Commercial Trust (SGX:N2IU) (2.9%) have the largest exposure to tenants within the leisure and entertainment trade sector with a large percentage in relation to cinemas.
  • Food & Beverage tenants have been impacted since the start of the Covid-19 outbreak and will likely to see a further dip in sales with these revised guidelines, and combined with possible shorter operating hours, would face tough operating conditions in the near term.
  • Based on our estimates, the Leisure and Entertainment sector represents the single largest trade sector by GRI among the retail S-REITs at 30.9%. This would hit the likes of heartland malls - CapitaLand Mall Trust (31.3%) and Frasers Centrepoint Trust (37.8%) - and also Lendlease’s 313@somerset (39.4%).
  • Impact of a suspension among education tenants likely to be relatively low, as retail malls’ exposure is less than 2% (CapitaLand Mall Trust, Frasers Centrepoint Trust, Mapletree Commercial Trust).
  • Our concern lies on potential for similar restrictive measures to be expanded to tenants within the beauty services sector, which would likely have an impact on all retail S-REITs across the board. Beauty services sector, which would likely have an impact on all retail S-REITs across the board. Beauty services contributes a surprisingly large percentage of gross rental income within the range of c.5.8-12.0%.

Sensitivity analysis: FY20F DPU projected to dip by 4.2- 12.3%






Derek TAN DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-03-25
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