SINGAPORE (Apr 24): Covid-19 has upended several orthodoxies. One of them is the view that retail REITs with suburban malls are the most defensive in the sector. To prevent the spread of the coronavi-rus, most retail outlets are closed.Singapore’s Temporary Measures Bill (TMB) allows stressed tenants to hold off paying rent for six months.

However, retail REITs have to support their tenants, perhaps by collecting very little or no rent, or giving them rebates. This means the REITs would see lower income.The lack of rental income will affect several aspects of retail REITs. These include distributable income and DPU as well as interest coverage ratio and the ability to meet interest expense. In addition, the sharp decline in rental income and net property income could also impact their valuations. That, in turn, would affect aggregate leverage or gearing levels of REITs as they measure debt against assets. If asset levels are set for a decline, gearing would rise even though the REIT has not taken on any additional debt.

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