Singapore Retail REITs - UOB Kay Hian 2020-05-27: Fortitude Budget Provides Backstop


Singapore Retail REITs - Fortitude Budget Provides Backstop

  • Visibility has improved with the roadmap for re-opening post-Circuit Breaker already announced. In addition, the Fortitude Budget provides new cash grant equivalent to about 0.8 month’s rent for SME tenants, which would help affected retailers tide over this difficult COVID-19 pandemic period.
  • Upgrade CapitaLand Mall Trust (SGX:C38U) (Target: S$2.60) and Frasers Centrepoint Trust (SGX:J69U) (Target: S$2.85) from HOLD to BUY. Maintain BUY on Mapletree Commercial Trust (SGX:N2IU) (Target: S$2.38).
  • Upgrade Retail REITs to OVERWEIGHT.

Fortitude Budget extends more support to retailers.

  • The government will provide a cash grant to offset the rental costs of SME tenants (annual turnover not more than S$100m) to be disbursed through owners of commercial properties (shops) from end-July. The new cash grant is equivalent to about 0.8 month’s rent.
  • Together with the Property Tax Rebate announced previously, total government support amounts to about two months of rent for SME tenants.

“Public Private Partnership” to bring relief to retailers.

  • The Ministry of Law will introduce a new Bill next week mandating that landlords grant rental waiver to SME tenants who have suffered a significant revenue drop in the past few months. If passed by Parliament, these affected SME tenants will benefit from a total of four months of rental relief, which is shared equally between the Government and landlords.

Status quo for retailers during Phase 1.

  • The multi-ministry taskforce for COVID-19 announced last Tuesday the end of Circuit Breaker and a phased approach to resuming activities safely. Phase 1 of re-opening commences on 2 Jun 20 and is expected to last 4-6 weeks. Unfortunately, most retailers remain closed, except school bookshops, healthcare services, hairdressers & barbers and basic pet services. Dining in at F&B outlets remains prohibited during Phase 1.

More easing for retailers during Phase 2.

  • Assuming no flare up of new COVID-19 infections, Phase 2 of reopening will see social activities returning in small groups. More retailers will progressively be allowed to re-open, starting with F&B dine-in and followed by retail outlets, gyms and fitness studios, and tuition and enrichment centres. More retailers will resume operations over several stages and several months.

Visibility has improved.

  • We envisage that Phase 1 of re-opening post-Circuit Breaker occurs mainly in Jun 20, Phase 2 in 3Q20 and Phase 3 starting 4Q20. Social, cultural, religious and business gatherings and events would resume during the new normal of Phase 3, although size of gathering/event would still be limited.

Fortitude Budget puts backstop on further rental relief.

  • The cash grant to offset rental costs and new Bill mandating rental waiver to be introduced next week would standardise rental relief offered by different landlords of retail malls. With the roadmap for re-opening post Circuit Breaker already announced, we expect the latest relief package to be able to help retailers tide over this difficult COVID-19 pandemic period.

CapitaLand Mall Trust (SGX:C38U) (Upgrade to BUY/ Target Price: S$2.60).

Tenant relief package.

  • CapitaLand Mall Trust has committed to a rental relief package totalling S$114m. Eligible tenants were granted a waiver on their turnover rent and were permitted to use 1- month security deposit to offset their rents in Mar 20. Almost all the retail tenants will get 100% rental rebates in April and May 2020.
  • We have raised our DPU forecast by 8.5% to 9.97 S cents for 2020, and by 13.1% to 12.04 S cents for 2021.

Upgrade CapitaLand Mall Trust to BUY.

Frasers Centrepoint Trust (SGX:J69U) (Upgrade to BUY/ Target Price: S$2.85).

Frasers Centrepoint Trust extended its Tenant Support Package of S$17m post the Supplementary Budget.

  • These rental rebates will be disbursed to tenants in a targeted manner, prioritised by individual needs and circumstances. Combining the rental rebates, property tax rebates and offsetting of cash security deposit, all Frasers Centrepoint Trust's tenants will get some form of relief from rental payments for the months of April and May.
  • We raised our DPU forecast by 4.8% to 9.92 S cents for 2020, and by 7.5% to 11.48 S cents for 2021.

Upgrade Frasers Centrepoint Trust to BUY.

Mapletree Commercial Trust (SGX:N2IU) (BUY/ Target Price: S$2.38).

Support packages to provide relief for eligible tenants.

  • Mapletree Commercial Trust has rolled out three rental relief packages totalling S$50m to help eligible retail tenants during this challenging period. The packages include up to 3.5 months of rental rebates for eligible tenants, including 1.1 months of property tax rebates.
  • We have raised our DPU forecast by 4% to 8.05 S cents for 2021, and by 2.9% to 9.60 S cents for 2022.

Maintain BUY on Mapletree Commercial Trust.

Sector Catalysts

  • Retail REITs provide stability in domestic consumption should the external environment deteriorate due to escalation in trade conflict.
  • Limited new supply for retail space in 2020 and 2021.

Assumption Changes

  • We assume that occupancy at suburban malls would fall to 95% (previous: 85%) and at downtown malls to 88% (previous: 80%) by end-20. We have also assumed negative rental reversion of 15% (previous: 20%) for retail malls for 2020, followed by recovery in 2021.


  • Uncertainties from US-China trade conflict.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-05-27
SGX Stock Analyst Report BUY MAINTAIN BUY 2.38 UP 2.020