MAPLETREE COMMERCIAL TRUST (SGX:N2IU)
KEPPEL REIT (SGX:K71U)
FRASERS CENTREPOINT TRUST (SGX:J69U)
CAPITALAND RETAIL CHINA TRUST (SGX:AU8U)
Singapore Property & REITs - Circuit Breaker Extension ~ Is This The Last Straw To Break The Virus Spread?
- Next six weeks may prove to be a near term bottom for the sector if the extended circuit breaker halts the spread of COVID-19.
- Stick to industrials for their relative earnings security; BUY Mapletree Commercial Trust (SGX:N2IU), Keppel REIT (SGX:K71U) and Frasers Centrepoint Trust (SGX:J69U) on share price falls beyond 15%-20% of our TPs.
- Overseas S-REITs like CapitaLand Retail China Trust (SGX:AU8U) with yields of > 8% are attractive as virus woes appear to fade.
- Residential developments grind to a halt and developers will look for some form of regulatory reprieve.
Pressurising industry fundamentals further.
- The extension of the COVID-19 circuit breaker to 1 June 2020 with stricter measures means that households will be hunkering down at their homes for close to two months. With heightened social distancing measures in place, we expect immediate impact on landlords, especially the retail subsector as more shops are required to close. However, we believe other subsectors will not be spared this time as the extended period of closures of business premises may possibly lead to more tenants seeking rent reliefs.
- In a nutshell, we believe
- there is potential near term downside to our earnings estimates (especially retail S-REITs), and
- prospects of a lower payouts in the near term may be even higher now as landlords “hunker” down given heightened operational uncertainties.
- The final “bazooka” to end the virus spread? The return to normal living conditions may take a while. We view that this extended circuit breaker may be the final straw to break the virus spread and we can only hope that the community will emerge stronger (and hopefully virus-free) come early June 2020.
- That said, we expect a return to normalcy to be gradual and social distancing (and masks) may continue to be practiced in the distant future. This could mean that restaurants may continue to operate at c.50% of their designed capacities until there is a complete eradication of the virus from the system. Workers in offices/industrial properties/business parks may continue to practice some form of safe distancing or have split work-sites in the immediate term.
Never waste the opportunity of a crisis – is this the last leg down for share prices that we have been waiting for?
- While investors remain keen to be vested in the sector, we reckon that many have remained on the sidelines as seen in the slight rebound in share prices over the past 1-2 weeks. In the immediate term, we anticipate the S-REITs sector to face weakness on the news of the extension of the circuit breaker. This is especially for retail S-REITs as the circuit breaker extension has yet to be factored in and this sub-sector could see more significant earnings downgrades in the near term.
- However, we believe that weakness in the coming weeks may indicate a potential “last leg” down for investors to accumulate the stronger names if the stricter circuit breaker measures prove successful in finally curbing the spread of COVID-19 in the community.
Stick to industrials, buy selected retail/mix-use S-REITs at lower valuations.
- In terms of preference, overseas focused S-REITs like (CapitaLand Retail China Trust (SGX:AU8U), Mapletree North Asia Commercial Trust (SGX:RW0U)) may hold up better as their operations may be past the worst.
- We continue to like industrial S-REITs (Mapletree Industrial Trust (SGX:ME8U), Ascendas REIT (SGX:A17U), Mapletree Logistics Trust (SGX:M44U)) given their relative earnings security but caution that that it is an over-owned sector which may see near term profit-taking.
- If prices weaken further, we look to accumulate those S-REITs with a niche asset class (Mapletree Commercial Trust (SGX:N2IU), Keppel REIT (SGX:K71U), Frasers Centrepoint Trust (SGX:J69U)), which we expect should rebound strongly when the uncertainty subsides.
Residential developments come to a halt; developers will hope for some regulatory reprieve.
- For property developers, the requirement that all foreign workers must serve a stay-home-notice could mean a delay in restarting construction activities and thereby sales for projects under development. While exposure may not be significant and the requirement to completing a project (5 years from start) is generally still 2+ years away, time may soon run out for some developers.
- We believe a potential loosening of the 5-year construction completion period or a delay of the additional buyer stamp duty (5 years from award of land tender) may be considered given the near-term construction delays. We like CapitaLand (SGX:C31) given its relative superior ROEs to peers.
See attached PDF report for summary of imact on various sector and respective stock picks.
Derek TAN
DBS Group Research
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Rachel TAN
DBS Research
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Dale LAI
DBS Research
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https://www.dbsvickers.com/
2020-04-22
SGX Stock
Analyst Report
1.900
SAME
1.900
1.450
SAME
1.450
2.050
SAME
2.050
1.550
SAME
1.550
