Singapore REITs - UOB Kay Hian 2023-01-03: China Switches Decisively To Living With COVID-19 As An Endemic Disease

Singapore REITs - China Switches Decisively To Living With COVID-19 As An Endemic Disease


China downgrades management system for COVID-19.

  • The National Health Commission in China has downgraded COVID-19 from Class A (infectious disease requiring stringent control measures) to Class B (infectious disease requiring basic treatment and prevention). COVID-19 is now seen by the China authorities as a less virulent disease that will gradually turn into a common respiratory illness.

Reopening reduces disruption to economic activities.

  • The Chinese government eased COVID-19-related restrictions on 7 Dec 22. Lockdowns have become more targeted, covering specific buildings and floors as opposed to entire neighbourhoods or cities. Lockdowns at high-risk areas end after five consecutive days with no new infections, thus limiting the duration of lockdowns. COVID-19 patients with mild symptoms are able to isolate themselves at home rather than at centralised quarantine facilities. People can travel freely within the country without presenting negative test results.
  • China reopens its borders to the rest of the world. According to the National Health Commission, China will remove quarantine requirement for inbound arrivals, covering both foreigners and Chinese nationals, starting 8 Jan 23. It has scrapped its previous requirement of a five-day quarantine at a designated quarantine hotel followed by a three-days home quarantine. Travellers need to present negative results for COVID-19 tests taken within 48 hours of departure to be allowed into China. The easing of restrictions facilitates travel to China for business, education and family reunions.
  • Hong Kong reopening its borders with Mainland China. Hong Kong’s Chief Executive John Lee said that “Hong Kong will reopen its borders with Mainland China by mid-January” after returning from a trip to Beijing where he met President Xi Jinping. Hong Kong has formed a task force to finalise the plan with local authorities in Shenzhen and Guangzhou before seeking final approval from the central government. Borders will be fully reopened in a gradual and orderly manner with the daily quota of travellers to be increased in stages. The requirement for quarantine was scrapped but Chinese visitors in Hong Kong have to observe three days of medical surveillance.

Braving the wave of Omicron variant infections.

  • China is currently battling a severe winter outbreak of COVID-19. The rapid easing of restrictions has resulted in a surge in COVID-19 infections. 248m people were said to be infected in the first three weeks of December. Up to 60% of China’s population could eventually be infected. Some experts have predicted 1 million deaths given China’s sizeable population of 1.4b.

A new dawn after normalisation.

  • There are regional disparities within China. New infections at gateway cities Beijing and Shanghai have already peaked in December. New infections in Guangdong, Hubei, Shangdong and Zhejiang provinces are expected to peak in January. The peak for rural areas should occur later but could be brought forward due to the mass migration of people during the Chinese New Year (22 January).
  • On a nationwide basis, China is expected to emerge from the tsunami of new infections in February or March.

Maintain OVERWEIGHT on Singapore REITs

  • Key beneficiaries of China’s rapid reopening are:
    1. retail properties in China benefitting from recovery in shopper traffic,
    2. office properties in China benefitting from higher physical occupancy, and
    3. hotels and serviced residences in the Asia Pacific region, such as Singapore, Australia and Japan, benefitting from an influx of Chinese tourists.

CapitaLand Ascott Trust (SGX:HMN)

  • Portfolio RevPAU recovered 88% y-o-y and 6% q-o-q to S$132 in 3Q22, which is 87% of pre-pandemic levels on a pro forma basis, due to higher occupancy (3Q22: >70%) and ADR (9M22: +40% y-o-y). China and Singapore recorded strong sequential growth, while Australia and the US continued to perform at close to pre-pandemic levels. Excluding contributions from eight new properties, same-store gross profit grew 70% y-o-y in 3Q22.
  • China: Recovery led by pick-up in domestic corporate travel. RevPAU rebounded 28% q-o-q but was flat y-o-y at RMB278 in 3Q22. Occupancy recovered from 50% in 2Q22 to 70% in 3Q22, driven by corporate long stays and project groups. The average length of stay was 6.5 months. Domestic corporate transient demand picked up after the quarantine duration was shortened by half to seven days in Jun 22.
  • Broad-based benefits for Asia Pacific portfolio. CapitaLand Ascott Trust’s Asia Pacific portfolio, which accounted for 61.4% of total assets as of Jun 22 (Australia: 12.8%, Indonesia: 1.3%, Japan: 17.8%, Malaysia: 0.6%, Philippines: 2.2%, Singapore: 17.1%, South Korea: 2.2% and Vietnam: 3.1%), benefit from the reopening in Mainland China. On a standalone basis, its five serviced residences in Mainland China accounted for 4.3% of total assets.
  • See

CDL Hospitality Trusts (SGX:J85)

CapitaLand China Trust (SGX:AU8U)

Far East Hospitality Trust (SGX:Q5T)

Mapletree Logistics Trust (SGX:M44U)

Mapletree Pan Asia Commercial Trust (SGX:N2IU)


  • Reopening reduces frequency and duration of lockdowns and closures. China’s transition to living with COVID-19 as an endemic would reduce disruptions to Sasseur REIT’s four outlet malls in Mainland China. Two of its outlet malls located at Chongqing Bishan and Kunming were temporarily closed for 7 days and 11 days respectively in 3Q22.
  • Reopening to generate recovery in tenant sales. Shoppers no longer need to present negative results for COVID-19 tests to patronise its outlet malls. The reopening will lead to recovery of domestic travel, which enhances shopper traffic and tenant sales at its outlet malls. Shopper traffic would recover once the current wave of COVID-19 infections subsides in February or March.
  • Defensive strength. Sasseur REIT has the lowest aggregate leverage of 26.4% among S-REITs, enabling Sasseur REIT to weather an extended period of high interest rates.
  • See

Assumption Changes

  • We maintain our exiting DPU forecasts for S-REITs.

Sector Catalysts

  • Hospitality, retail and office REITs benefitting from reopening and easing of COVID-19 restrictions in Singapore and around the region.
  • Limited new supply for logistics, office and retail segments in Singapore.

Sector Risks

  • Escalation of the Russia-Ukraine war beyond Ukraine.

Jonathan Koh CFA UOB Kay Hian Research | 2023-01-03

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