SINGAPORE (May 8): Retail sales were struggling even before “circuit breaker” measures were implemented on April 7. Singapore’s retail sales fell for the 14th straight month. March’s retail sales were down sharply by 13.3% y-o-y and 1.3% m-o-m. Excluding motor vehicle sales, retail sales declined 9.7% y-o-y.
As part of the safe distancing measures, practically entire malls are closed except for essentials such as supermarkets and pharmacies. From May 5, TCM shops can open. Whatever the case, most tenants have lost at least two months of sales.
Retail REITs are directly affected by Covid-19 as many of their tenants have shuttered their shops. In a results review, Tong Tan, CEO of the manager of CapitaLand Mall Trust (CMT), says, “The impact from Covid-19 is expected to deepen in 2Q2020 due to the circuit breaker period, during which approximately 25% of the portfolio’s tenants are operating.”
As a result, retail REITs such as CMT have cut the distributions per unit (DPU) and distributable income. CMT announced it has withheld $69.6 million of income available for distribution in 1QFY2020. CMT’s quarterly rental revenue is around $204.3 million. Hence the retained distributable income is likely to provide rental relief for tenants for the month of June.
Year to date, CMT’s rental relief totals around $114 million (excluding the distributable income that has been retained). This translates into 100% rental rebates in April and May for almost all the retail tenants, inclusive of the value of property tax rebates. Additional rental rebate was granted from March 27 to 31 for tenants ordered to close their premises since March 27 this year. On top of that, eligible tenants were granted a waiver on their turnover rent and were permitted to use the one-month security deposit to offset their rents in March.
Operationally, in 1Q2020, CMT’s revenue and net property income increased by 6.0% and 5.9% y-o-y, respectively. The increase in revenue and NPI was mainly due to Funan coming onstream in June last year, offset by the amortisation of rental rebates granted to tenants affected by Covid-19 pandemic.
Among the REITs, Mapletree Commercial Trust (MCT) has retained sufficient income for distribution to cover rental rebates at Vivocity till July. MCT has retained some $43.7 million of income available for distribution in 4QFY2020 ended March. Vivocity’s monthly rental revenue is around $18 million. During a results briefing last month, Sharon Lim, CEO of the manager of MCT, said, “We would expect less than 10% of our tenants to apply [for rent relief] under the Temporary Measures Bill.” In comparison, MCT’s office and business park income is around $25 million a month. Last year MCT acquired Mapletree Business City Phase 2, taking the portion of its retail revenue to 43.7% (see chart).
Credit Suisse says retail REITs have been most at risk and viewing the amount retained as a proportion of retail rental income could provide a better comparison of the buffers provided by the retained income.
“Among the REITs under our coverage, MCT seems to be best prepared given that the $43.7 milllion of income it retained is equivalent to 2.4 months of its retail revenues. In comparison, the income retained this quarter for Suntec REIT, Frasers Centrepoint Trust and SPH REIT vary between one and 1.4 months,” Credit Suisse says in a recent report.
Despite the cuts in distributable income and hence DPU, management fees have not been cut for CMT, FCT, MCT and SPH REIT. This is because their base fees are based on a percentage of the value of their deposited property, and performance fees are a percentage of NPI.
The only REIT which announced lower fees is Mapletree North Asia Commercial Trust. Its base fee fell by 4.8% y-o-y to $23.2 million for FY2020. In 4QFY2020, base fee fell 17.5% y-o-y to $5.1 million. MNACT did not announce a performance fee as its performance fee is based on DPU growth.
While Far East Hospitality Trust (FEHT) has not retained its income available for distribution, distributable income has fallen, as has its DPU which is paid quarterly. As part of the alignment between manager and unitholders, FEHT’s manager announced that the trust’s base fee is reduced from 0.3% to 0.28% per annum of the value of the deposited property for FY2020. Performance fee is reduced from 4.0% of the net property income to 4.0% of the net property income or 4.0% of the annual distributable amount for that financial year, whichever is lower.
Starhill Global REIT announced that it is changing to semi-annual distributions from this year onwards. However, it has not retained any income available for distribution. But at the same time it announced that its base fee will be paid in units, to conserve cash. Among the industrial REITs which have retained income available for distribution, both ESR-REIT and Soilbuild Business Space REIT have their performance fees based on DPU growth.
