The coronavirus outbreak may hit Singapore real estate investment trusts harder than the global financial crisis did, according to Jefferies Financial Group Inc.
Singapore announced on Tuesday its strictest measures yet to combat the spread of the virus, including shutting bars and cinemas, and deferring or canceling events starting from 11:59 p.m. Thursday. Public venues such as retail malls and museums will have to ensure that groups do not exceed 10 people.
Those measures will further test investor appetite for Singapore’s REITs. With a 23% plunge, a gauge tracking them is heading for its worst quarterly drop since 2008 even though the firms offer the region’s highest yields. Unit prices have tumbled in recent weeks on mounting virus concerns and a sell-everything mentality in global markets.
The trusts have “factored in severe declines” into distribution per unit, but the impact on net operating income might be bigger than during the global financial crisis, Jefferies analyst Krishna Guha wrote in a note. “Current valuations are not even close to GFC troughs,” and the closure of public venues can last longer, the report said.
Leisure and entertainment as a tenant category accounts for an estimated 5% of gross rental income for CapitaLand Mall Trust and Frasers Centrepoint Trust, and up to 13% for Suntec Real Estate Investment Trust, the Jefferies note added.
Still, the FTSE Straits Times Real Estate Investment Trust Index jumped 9%, the most since 2009 on Wednesday, tracking a bounce in risk assets across the world on optimism about the upcoming historic stimulus package in the U.S. to stem the coronavirus.
DBS Group Holdings Ltd. analyst Derek Tan sees his estimated distribution per unit for the city-state’s retail landlords dropping by 4% to 13% for the fiscal year 2020.
The tenants’ inability to operate at full capacity can see some of them “asking for help from retail landlords in the form of rental rebates,” Tan wrote in a note.