Singapore Retail REITs - UOB Kay Hian 2020-04-06: Setback From Temporary Relief Measures


Singapore Retail REITs - Setback From Temporary Relief Measures

  • The government has enhanced safe distancing measures at retail malls. New legislation would also be enacted this week to give temporary and targeted relief to tenants affected by the COVID-19 pandemic.
  • We have downgraded CapitaLand Mall Trust and Frasers Centrepoint Trust to HOLD after factoring in:
    1. occupancy for suburban malls dropping to 85% and downtown malls to 80% by end-20, and
    2. negative rental reversion of 20% in 2020.
  • Downgrade retail REITs to MARKET WEIGHT.

New legislation provides temporary and targeted relief.

  • According to the Ministry of Law, the government plans to introduce the COVID-19 (temporary measures) bill in parliament this week. The COVID-19 pandemic has caused unprecedented and unforeseen disruptions. The act seeks to offer temporary and targeted relief to businesses and individuals unable to fulfil their contractual obligations due to the COVID-19 pandemic. It provides temporary cash flow relief for these businesses and individuals, who otherwise have to pay damages or risk having their deposits or assets forfeited.

Temporary measures last for 6 months.

  • The act covers relevant contractual obligations that are to be performed on or after 1 Feb 20, for contracts that were entered into or renewed before 25 Mar 20. It covers leases for non-residential immovable property and termination of leases of non-residential premises. These measures will be in place for a period of six months from the commencement of the act. It may be extended, for up to a year from the commencement of the act.

Rents could be deferred but not waived.

  • The bill does not cancel the tenant’s obligations. Tenants will get temporary relief from rental payments during the Relief Period but rent payments will continue to accrue. The bill only prevents landlords from taking any of the legal actions against their tenants, such as terminating the lease agreement for non-payment of rent during the Relief Period.
  • COVID-19 is unlikely to trigger rent suspension clauses, which usually apply only where there is physical damage or destruction to the building.

Safeguard against unfair outcomes.

  • Assessors will be appointed by the Minister for Law to resolve disputes arising from the application of the act. They will decide if the inability to perform contractual obligations was due to COVID-19 and will have the powers to grant relief that is just and equitable in the circumstances.

Enhanced safe distancing measures.

  • To prevent the spread of COVID-19, the government has closed all bars and entertainment venues due to high risk of transmission. Retail malls’ operating capacities have been reduced to ensure there is 16sqm of useable space per person. There should be at least 1m physical spacing between patrons, including queue and waiting areas. Food and beverage outlets must arrange tables and seating to ensure separation of at least 1m between tables or different groups of diners. Each group of diners should be limited to 10 persons or fewer.
  • The government urges Singaporeans to stay at home, unless going out for essential services.

Circuit breaker to minimise further spread.

  • All businesses that cannot be conducted through telecommuting from home will be suspended from 7 Apr 20 to 4 May 20 (inclusive). Essential services, such as healthcare, social services, financial services, cleaning services, and water, energy & environment related services, and their related supply chains will continue to operate.
  • Schools and institutes of higher learning will shift to full home-based learning, while preschool and student care centres will suspend services. All restaurants, hawker centres, coffee shops, food courts and other food and beverage outlets will remain open only for takeaway or delivery.


  • We assumed that occupancy will fall to 85% at suburban malls and to 80% at downtown malls by end-20. We also assumed negative rental reversion of 20% for retail malls for full-year 2020.
  • For pure retail REITs CapitaLand Mall Trust and Frasers Centrepoint Trust, we have assumed distribution payout ratio at 90% for the calendar year 2000.
  • We have also adjusted our forecast to reflect rental relief using rebates on property tax.

CapitaLand Mall Trust (SGX:C38U) 

  • CapitaLand Mall Trust will release 1-month of security deposit to offset rental payments for the month of March this year. Thus, its base of security deposits was reduced from 3-5 months to 2-4 months.
  • With the Supplementary Budget, property tax relief was enhanced from 15% to 100%. CapitaLand Mall Trust does not have to pay property tax in 2020. Previously, rental rebate was at 0.5-month for the majority of its tenants. With the Supplementary Budget, CapitaLand Mall Trust is able to provide additional rental rebate of 1.5 months, bringing total rental rebate to 2.0 months for its shopping mall tenants. Tenants most affected by COVID-19, including those in the F&B and fashion trades, will have their rents waived for two months in April to May.
  • Clarke Quay (CQ) is most affected by the suspension of bars and entertainment venues. Restaurants at CQ remains open. CQ accounted for less than 5% of total revenue. We have assumed that occupancy at CQ drop to 70% by end-20.
  • We have cut our DPU forecast by 22.4% to 9.87 S cents for 2020F and 18.7% to 10.23 S cents for 2021F.
  • Downgrade to HOLD. Our target price of S$1.65 is based on DDM (required rate of return: 6.5%, terminal growth: 0.5%).
  • See CapitaLand Mall Trust Share PriceCapitaLand Mall Trust Target PriceCapitaLand Mall Trust Analyst ReportsCapitaLand Mall Trust Dividend HistoryCapitaLand Mall Trust AnnouncementsCapitaLand Mall Trust Latest News

Frasers Centrepoint Trust (SGX:J69U)

Mapletree Commercial Trust (SGX:N2IU)

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-06
SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.65 DOWN 2.720