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'A year to forget' for retail S-REITs as restrictions drag on, with extensions 'highly likely': DBS

Jovi Ho
Jovi Ho10/25/2021 03:02 PM GMT+08  • 3 min read
'A year to forget' for retail S-REITs as restrictions drag on, with extensions 'highly likely': DBS
“Going forward, measures will be reviewed fortnightly, and could be extended, which is highly likely in our view."
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Singapore retail REITs have had “a year to forget”, as current restrictions add another dampener for business, say DBS Group Research analysts Geraldine Wong and Derek Tan.

The government has announced that the current tightened restrictions will be extended to Nov 21 subject to a review in two weeks. The current tightened measures will be maintained at a social cap of two pax, which extends to dine-in limits. Unvaccinated people will continue to have restricted access to retail malls and dining in.

This follows the heightened capacity constraints in our nation’s isolation bed capacity and intensive care units, as daily case counts are close to surpass the 4,000 daily case mark.

“Going forward, measures will be reviewed fortnightly, and could be extended, which is highly likely in our view,” write Wong and Tan.

In an Oct 25 note, Wong and Tan prefer Frasers Centrepoint Trust (FCT) and Lendlease Global Commercial REIT (LREIT) among the retail-focused S-REITs; and Mapletree Commercial Trust (MCT) for its “dominant mall positioning”.

“While we see volatility in the near term for SG retail focused S-REITs, we note that prices have remained fairly stable during the past month, and we believe that negatives are substantially priced in,” write Wong and Tan.

See: Frasers Centrepoint Trust saw shopper traffic fall in 3QFY21, occupancy stable at 96.4%

Share prices likely have priced in an extension. Thus, Wong and Tan expect minimal downside. “Given the rise in the number of cases, we believe the market has well anticipated this news and has not priced in a scenario of an end to the current restrictions by Oct 24. While the measures are extended, we take heed that there is no further tightening.”

That said, this is not a repeat of the circuit breaker period, say Wong and Tan, as retail sales are generally higher in 2021, implying less urgency for blanket rebates.

“Given that the benchmark of a 20% decline in revenue is being considered, not all tenants will fall under this bracket, compared to the circuit breaker period last year. We estimated that offline retail sales value (ex-motor) was $1.6 billion during the circuit breaker months last year as opposed to $2.35 billion during this year’s ‘heightened alert’ months,” say Wong and Tan.

The government will be extending an additional half-month of rental waivers for qualifying tenants, bringing total quantum of rental waivers year-to-date (YTD) to two months (1.5 months from the government + 0.5 months from landlords).

Qualifying tenants have stricter terms, requiring a 20% drop in average monthly revenue for those granted a rebate of an additional 0.5 months from landlords.

“We understand that most landlords have at least received the minimum rental waiver quantum, which we estimate to be approximately one month (or up to 1.5 months) of waivers on a blended basis prior to this announced extension,” say Wong and Tan.

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As at 2.44pm, units in Frasers Centrepoint Trust are trading flat at $2.35; while units in Lendlease Global Commercial REIT are trading flat at 88 cents; and units in Mapletree Commercial Trust are trading 1 cent higher, or 0.47% up, at $2.15.

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