Singapore REITs Sector – Master lease exposures April 27, 2020 302

  • Sponsor of Eagle Hospitality Trust failed to make timely rental payments of its master lease
  • Healthcare and Hospitality REITs are most reliant on master leases

 

Background

After defaulting on a US$314mn loan, trading of Eagle Hospitality Trust (Eagle) was voluntarily suspended on 24 March 2020. It followed the failure of its sponsor and master lessee, Urban Commons LLC to place the full sum of the security deposit under the master lease agreements and make timely rental payments since December 2019. Eventually, dividends due for distribution on 30 March 2020 were not paid out to unitholders. The master lease agreements have an initial term of 20 years from the Listing Date and the stipulated security deposit is equivalent to nine months of the monthly fixed rent. The fixed rent was 66% of the total rent projected for the year 2020.

 

Comments

In Figure 1, we compiled a list of REITs with master leases. Our findings are as follows:

  • For healthcare and hospitality REITs, it is common for the master lessee to be part of the sponsor’s subsidiary or group of companies.
  • Healthcare and hospitality REITs have the highest proportion of rents dependent on the master leases. On the flip side, industrial and retail REITs have less concentration of master leases and are usually diversified. There are minimal master leases for Commercial REITs as they usually own multi-tenanted buildings, except for IREIT which has a 40.1% single-tenant concentration by GRI.
  • Based on standard industry practice, one month’s worth of gross rental is usually held as security deposit for each year’s lease. For example, a 5-year lease would require 5 months of committed security deposit. However, a larger sum of security deposit may be held for long-term leases in single-tenanted properties.

 

Figure 1: REITs with master leases

 

Various vendors/tenants = 3rd party vendors and tenants

*Includes proportion of anchor tenants

**Excludes CapitaMall Erqi to be divested on 7 Feb 2020

*** ML contribution by asset

– Unable to find supporting data

Source: PSR, Companies

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Tan Jie Hui
Research Analyst
Phillip Securities Research

Jiehui covers the REITs and Property sector. Previously at a sell-side research firm, Jiehui was exposed to news flow and insights from various industries and assisted the property and consumer analysts with their coverage.

She graduated with a Bachelor of Business Management with a major in Finance from Singapore Management University.

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