Earlier today, PM Lee announced that Singapore's circuit breaker measures will be extended by 1 month until 1 June 2020. The measures were supposed to end on 4 May but due to the increasing number of unlinked cases in the community, these measures were extended and will also be tightened to reduce the number of people going out.

In anticipation of this, it appears that the majority of S-REITs retraced gains from last week. REITs with retail exposure will continue to be the most affected as seen from the declines of CMT, MCT and Suntec. With even lower sales volumes, it would be interesting to see how many more essential businesses will decide to voluntarily close to keep costs down.

S-REIT closing prices as at 21 Apr 2020 (Source: SGX)

As the closures drag on, the follow-on impact to the other REIT sectors is also likely to be larger than initially expected. Both office and industrial landlords are likely to experience negative rental reversions and even declines in occupancy if businesses downsize.

During this extended period of uncertainty, investors could see a flight to safety with long WALEs (weighted average lease to expiry) and strong balance sheets being favoured. To this end, we already see Keppel DC REIT outperforming with a WALE of 8.3 years and 32% gearing. The market has rewarded KDCREIT by letting it trade at >2.0x P/B. While this could indicate limited near-term upside, I think investors are more focused on downside protection for now and could continue to support KDCREIT's share price.

While KDCREIT has not disclosed its tenant list, I understand that this includes the likes of large hyperscale cloud players like Amazon Web Services. During this period, I do not foresee any trouble for such tenants in paying rents or requiring substantial rental support from the REIT. For now, KDCREIT continues to tick the right boxes as a sustainable real estate asset class.

KDCREIT 1Q20 outlook slide (Source: KDCREIT announcement)

In related news, KDCREIT's sponsor announced a partnership to study the feasibility of a floating data centre park. If this takes off, this could be an interesting development as the permits for new data centres in Singapore have been drying up. Looking forward to this potentially becoming a new pipeline ROFR (right of first refusal) asset for the REIT and seeing how the market reacts to this new sub-asset class.