• Fortified by income retention in 2Q19/20.
• Limited downside risk from proposed Rental Waiver Bill as SPH REIT has given the most rebates amongst retail landlords.
• Upgrade to HOLD given its trough P/NAV; higher Target Price of S$0.80.

Upgrade SPH REIT to HOLD, Target Price Increased to S$0.80

• The 79% cut in DPU to 0.3 Sct for the quarter may come as a shock to investors but could now become the upside surprise. The retained income has been used to offset tenant rentals during the Circuit Breaker period. SPH REIT (SGX:SK6U) will be providing up to 2.3 months of rent relief to selected tenants, the most amongst the retail landlords.
• With landlords having to potentially give up to two months of rental relief (proposed Rental Waiver Bill), SPH REIT will unlikely have to make further provisions or provide further rebates.
• As the worst of the COVID-19 pandemic is past us, we can see the light at the end of the tunnel with the gradual easing of the Circuit Breaker measures and retail malls reopening as early as July (phase 2 post Circuit Breaker measures). Thus, we increased our Target Price to reflect the resumption of rental collections in the coming weeks.

Latest Government Budget and Proposed New Bill That Will Truly Set SPH REIT Apart

• For most commercial property landlords, the latest developments announced in the Fortitude Budget is both a boon and a bane. However, having been the most generous landlord to provide up to 2.3 months of rental rebates (on top of passing on property tax rebates), SPH REIT will unlikely have to provide more rental relief if the proposed Rental Waiver Bill is passed in June 2020.

Slow Recovery for Luxury Retail Malls Along the Orchard Road Belt

• Despite the gradual reopening of retail businesses in Singapore, we expect SPH REIT’s Paragon mall to continue facing weakness in the near term. With the ongoing COVID-19 outbreak and the impending economic slowdown, luxury retail will be impacted, and tourist arrivals will continue to be muted.

Singapore Retail REITs

• Frasers Centrepoint Trust - DBS Research 2020-05-29: Suburban Giants To Lead Retail Recovery.
• Lendlease Global Commercial REIT - DBS Research 2020-05-06: Steering Steady Amidst The COVID Storm.
• Mapletree Commercial Trust - DBS Research 2020-05-29: The Flower That Blooms In Adversity.
• SPH REIT - DBS Research 2020-05-29: It Pays To Be Prudent
• Starhill Global REIT - DBS Research 2020-05-29: Slowly But Surely.

Source: DBS Research - 29 May 2020