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The impact on net operating income might still be bigger than it was during the global financial crisis, says an expert.
The coronavirus (Covid-19) outbreak may strike Singapore real estate investment trusts (REIT) hard, even worse than the global financial crisis did.
As Singapore revealed its strictest measures yet to combat the outbreak, which include the shutting down of bars and cinemas, the cancellation of events, as well as the limitation of people at public venues like retail malls and museums, Jefferies Financial Group Inc. noted that such measures will further test investor appetite for Singapore REITs, reported Bloomberg.
With a 23% drop, a gauge tracking the REITs is heading towards its worst quarterly fall since 2008 even as companies offer the highest yields within the region. Unit prices dropped in recent weeks on rising virus concerns as well as a sell-everything mentality in global markets.
While the trusts have considered “severe declines” into distribution per unit, the impact on net operating income might still be bigger than it was during the global financial crisis, explained Jefferies analyst Krishna Guha in a note.
For instance, leisure and entertainment as a tenant category alone comprises 5% of gross rental income for Frasers Centrepoint Trust and CapitaLand Mall Trust, and up to 13% for Suntec Real Estate Investment Trust.
“Current valuations are not even close to GFC troughs,” while the closure of public venues could last longer, said the report.
Despite this, FTSE Straits Times Real Estate Investment Trust Index soared the most since 2009 on Wednesday (25 March) at 9%, tracking a worldwide bounce in risk assets on optimism about the forthcoming historic stimulus package in the US to curtail the coronavirus.
DBS Group Holdings Ltd. analyst Derek Tan, for his part, expects his estimated distribution per unit for Singapore’s retail landlords falling by 4% to 13% for the fiscal year 2020.
The inability of tenants to operate at full capacity can lead them “asking for help from retail landlords in the form of rental rebates,” wrote Tan in a note.
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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg
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