SINGAPORE (Apr 24): REITs in Singapore have been forced to factor in uncertainties as the Covid-19 outbreak lingers, resulting in a need to conserve cash through lowering dividend payouts. 

With weaker margins and revenue in the pipelines, CGS-CIMB analyst Eing Kar Mei observes that most REITs have, in their latest quarterly results, retained a portion of their distributable income amounts in a bid to brace themselves for the storm ahead. 

Eing notes that Frasers Centrepoint Trust (FCT), Mapletree Commercial Trust (MCT) and ESR REIT have retained 50%, 30% and 60% of their distributable income figures respectively. 

“This works out to be about 0.3 months of ESR’s income and 1 month of FCT and MCT’s rental income,” shares Eing. 

“The REITs have substantial cash and undrawn revolving facilities. With the gearing limit raised to 50%, the REITs have substantial debt headroom,” she adds. 

But with challenges ahead, Eing has identified some points of optimism for REITs. For instance, the brokerage notes that 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,” says Eing. “For now, the REITs are only seeing up to 15% of their tenants possibly requesting for rental deferrals,” she adds. 

In addition, although lease renewals are now taking longer to seal, there have been no signs of negative rental reversions due to Covid-19 yet - which is a hopeful point for both REITs and their investors alike. 

However, with the latest set of quarterly results shedding some light on the financial positions and outlooks of REITs, which ones should investors cash in on?


Year to date, units in ESR REIT have tanked some 40%. Although this could be a cause for concern for some existing investors, DBS Group Research opines that the REIT’s current trading price represents an attractive 26% upside to the counter. 

In particular, analyst Dale Lai says that the REIT is taking a precautionary approach by including provisions and holding back on capital distributions for the time being. 

“In addition to setting aside provisions for rental deferment and rebates, ESR REIT (“EREIT”) has also taken the prudent approach of retaining $7 million or 28% of distributable income for 1QFY2020,” says Lai, adding that without the retention in distributable income, ESR REIT would have booked a DPU of 0.697 cents. 

In addition, the brokerage is banking on a “sooner-than-expected” recovery for the REIT after the virus eases. 

“A faster-than-expected rebound after the Covid-19 outbreak could support increased activity and allow EREIT to reinstate its inorganic growth plans for the rest of FY2020,” adds Lai. 

CGS-CIMB’s Eing adds that ESR REIT’s occupancy and retention rates remained high for the quarter, with portfolio occupancy coming in at a stable 90.5%. In addition, 12.5% of the REIT’s leases are due for renewal in FY2020, with 9% indicating an intention to renew.

Eing also shares that the although the REIT’s gearing of 41.7% is relatively higher than its peers, its portfolio remains 100% unencumbered, with 90% of its debt on a fixed rate. 

Both brokerages are opting to remain bullish, with CGS CIMB is reiterating its “add” call on the REIT and DBS Group Research maintaining a “buy” call with respective target prices of 50 cents and 43 cents. 

As at 1.45pm, units in ESR-REIT are trading two cents lower, or 6.0% down, at 31.5 cents. 

Frasers Centrepoint Trust 

Being a suburban mall-focused landlord, analysts are opting to believe that Frasers Centrepoint Trust (FCT) will recover faster than the other REITs. 

FCT’s higher revenue for 1HFY2020 came on the back of strong growth across all its malls except Anchor Point. The REIT’s portfolio occupancy rate also remained high at 96.1% in 1QFY2020. 

However, FCT was not spared from declines in shopper traffic across all its malls, and a larger decline in tenant sales among its larger malls. 

“Portfolio shopper traffic turned from a positive growth in Jan 2020 to a mild negative in Feb 2020 and -9% in Mar 2020 due to the government’s multiple stricter safety distancing measures,” notes CGS-CIMB’s Eing. 

Looking ahead, Maybank Kim Eng Research opines that a boost in FCT’s tenant support package could cause a further reduction in the brokerage’s DPU forecasts for FY2020. 

“These tenants may receive additional support as FCT has yet to pass on 85% of the property tax as announced by the government on 27 March, and can draw down on security deposits as an offset,” says Maybank analyst Chua Su Tye. 

“An additional month of rental waiver could reduce our revised FY2020 DPUs by a further 9%,” adds Chua. 

Chua adds that apart from a potential acquisition of a further 12% stake in PGIM, FCT has low acquisition visibility due to the tight retail cap rates in Singapore. 

While CGS-CIMB maintains an “add” call on FCT with a target price of $2.49, Maybank is opting for a more conservative approach with a “hold” call and target price of $2.30. 

As at 1.45pm, units in FCT are trading six cents lower, or 2.9% down, at $2.00. 

Mapletree Commercial Trust

At first mention of Mapletree Commercial Trust (MCT), investors would recall how the REIT recently slashed its 4Q DPU by 60% amid Covid-19 uncertainties. 

Analysts, however, are quick to identify the move as a precautionary measure, not a necessary one. 

But to Maybank’s Chua, MCT’s move was one aimed at “managing risks” as the management exercises caution by retaining some $43.7 million in capital distributions. 

Chua is quick to caution investors not to panic, but instead await a recovery. 

“We expect DPUs to recover in FY2021 following the decline in FY2020 with the capital retention, helped by the MBC II deal,” says Chua. 

To be sure, Chua notes that MBC II has helped improve the REIT’s DPU growth visibility, with the REIT’s assets under management (AUM) profile being bolstered as well. 

“[MCT’s] cap rates were unchanged since Aug 2020, but retail cap rates rose 25bp y-o-y while those for office and business park tightened by 10bps and 15bps respectively,” says Chua. 

In addition, Chua says that the MCT stands to benefit from its key asset VivoCity, which is also Singapore’s largest shopping mall. 

“Rental reversion should decelerate from strong double digits to 1.5-2% in FY2021-22E as VivoCity rents catch up with the market,” adds Chua. 

CGS-CIMB says that moving forward, MCT’s focus should be on maintaining occupancy rates in VivoCity. 

“On lease renewals, VivoCity only has 8.1% of rental income up for renewal in FY2021, while office/business park has 10.7% of income up for renewal,” says Eing. 

“VivoCity’s actual occupancy was 99.6%, while committed occupancy remained high at 99.7%,” she adds. 

Maybank remains bullish on MCT with a “buy” call and target price of $2.15, while CGS-CIMB is reiterating its “hold” call with a target price of $1.94.

As at 1.45pm, units in MCT are trading flat at $1.76.