FCT, MCT, ESR REIT - CGS-CIMB Research 2020-04-24: Bracing For The Impact Of COVID-19 In 2Q

FRASERS CENTREPOINT TRUST (SGX:J69U) MAPLETREE COMMERCIAL TRUST (SGX:N2IU) ESR-REIT (SGX:J91U)

FCT, MCT, ESR REIT - Bracing For The Impact Of COVID-19 In 2Q

Frasers Centrepoint Trust (SGX:J69U), Mapletree Commercial Trust (SGX:N2IU) and ESR REIT (SGX:J91U) conserved cash by lowering dividend payout due to uncertainties.
Traffic and tenants sales were impacted, but no real impact on rental reversions and rental deferments yet.

Frasers Centrepoint Trust (SGX:J69U)’s 1HFY20 DPU of 4.67 Scts came in at 47% of our full-year forecast, while both Mapletree Commercial Trust (SGX:N2IU) and ESR REIT (SGX:J91U)’s FY20 and 1QFY20 DPU of 8 Scts and 0.5 Scts, respectively, came in below our expectation, at 85% and 12% of our full-year forecasts. See
Mapletree Commercial Trust’s weaker-than-expected DPU was mainly due to retention of income in 4QFY20, while ESR REIT was due to weaker NPI margin and retention of income.
We cut ESR REIT’s FY20-22F DPU by 20-26%, factoring in weaker revenue and margins as a result of the conversion of single to multi-tenancies and the potential impact from the Covid-19 outbreak. We also removed capital gain distribution forecast.
Our FY21-22F DPU for Mapletree Commercial Trust is raised by 2-3%, after updating the full-year numbers and increasing the rental rebate assumption from 3 months to 3.5 months.
We reiterate ADD on Frasers Centrepoint Trust (0.94x P/BV) and ESR REIT (0.8x P/BV). Both stocks are trading below book.
We reiterate HOLD on Mapletree Commercial Trust, as its share price has been relatively well supported (1x P/BV) compared with its peers.
We expect minimum income, especially from the retail REITs, as the REITs bear the full-quarter impact from the pandemic. See also report: Singapore Retail REITs - CGS-CIMB Research 2020-04-14: Sailing Against The Tide.

Frasers Centrepoint Trust, Mapletree Commercial Trust and ESR REIT retained 50% (S$18m), 30% (S$7m) and 60% (S$43.8m) of their distributable income in 1QCY20. This works out to be about 0.3 months of ESR REIT’s income and 1 month of Frasers Centrepoint Trust and Mapletree Commercial Trust’s rental income. The REITs have substantial cash and undrawn revolving facilities.
With the gearing limit raised to 50%, the REITs have substantial debt headroom.
ESR REIT has no more refinancing this year, while Mapletree Commercial Trust has refinanced all its term loans due in FY21 in advance, with only S$160m (5% of total debt) remaining in FY21.

To our surprise, the REITs have only seen a few tenants requesting for rental deferment so far. This could be due to the 2-3 months “rental assistance period”, when most of the tenants do not need to pay rent. We believe there is a risk of a higher number of tenants opting for rental deferment once this assistance period is over.
For now, the REITs are only seeing up to 15% of their tenants possibly requesting for rental deferrals. ESR REIT has an average of 5.5 months of deposit in hand, while Mapletree Commercial Trust and Frasers Centrepoint Trust have 2-3 months. According to ESR REIT, a minimal number of its tenants are asking for rental rebates.

Lease renewals are taking longer now (vs. pre-Covid). Frasers Centrepoint Trust’s Mar leases were renewed at a slower rate, but still in the positive range. Mapletree Commercial Trust indicated that its focus is to maintain occupancy. As for its office/business park, there have been no signs of negative rental reversions due to Covid-19 yet. ESR REIT saw a mix of rental reversions for leases that have indicated intentions to renew.
Frasers Centrepoint Trust saw shopper traffic decline by 9% in Mar 2020. Mapletree Commercial Trust saw tenant sales and traffic dropping by ~13% and 21%, respectively, in 1QCY20.
See
See attached PDF report for complete analysis.