REIT - CGS-CIMB Research 2018-10-09: Minimal Impact From Newstead Liquidation

CAPITALAND MALL TRUST SGX:C38U FRASERS CENTREPOINT TRUST SGX:J69U SUNTEC REAL ESTATE INV TRUST SGX:T82U

REIT - Minimal Impact From Newstead Liquidation

Media reported that Newstead, which has stores with Capitaland Mall Trust, Frasers Centre Point and Suntec City, is in liquidation.
Minimal impact on the REITs due to the small floor space occupied by Newstead.
We maintain Overweight on the REIT sector with retail as our least preferred sub-sector due to the challenging retail outlook.

Media reported that home-grown electronics retailer Newstead Technologies is currently in liquidation.
Newstead was established in 1998 and owns brands such as Digital Style, Nubox and @notebook.com. It has outlets at Nex, Sim Lim Square, Suntec City, Marina Square, Bedok Mall, City Square Mall, Raffles City, Causeway Point, Jem, Tampines Mall, Waterway Point and Jurong Point.
Newstead’s shops in Suntec City, Marina Square and one of the shops in Sim Lim Square have been labelled as closed on the company’s website.
The affected REITs under our coverage are Capitaland Mall Trust (owns Tampines Mall, Raffles City (40% owned), Bedok Mall and Funan), Frasers Centrepoint Trust (owns Causeway Point) and Suntec REIT (owns Suntec Mall).

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Newstead, under nubox brand occupied about 1k sf of floor space each in Raffles City (0.2% of total retail NLA), Tampines Mall (0.3% of total NLA) and Bedok Mall (0.4% of total NLA). As for Funan, Newstead has reserved 15,000 sf of space in the building which represents 4.5% of the total retail net lettable area (NLA).
Due to the small floor space occupied in the existing malls, we believe DPU impact will be minimal. Although Newstead has taken up 4.5% of the total Funan retail space, Funan has yet to open and is receiving favourable lease queries. Hence, we believe Capitaland Mall Trust will be able to find a replacement if Newstead pulls out.

The impact on Frasers Centrepoint Trust is minimal as Newstead’s Nubox only occupies 1,900 sf of the total NLA of Causeway Point (0.5% of Causeway Point’s NLA).
Furthermore, Nubox is located at level 1 which makes it easier to find a replacement.

The retailer occupies c.0.4% of Suntec Mall’s NLA.
Well-located at level 1 in the North Wing, we believe it would not be an issue to fill the vacated space in the future.

In conclusion, the liquidation of Newstead could have a net negative impact on landlords; however, the impact on overall REITs’ earnings should not be substantial.
REITs usually hold 2-3 months’ rent as security deposit from tenants which can be used as a buffer, as the REITs or Newstead look for new tenants.

Rating: HOLD, Target Price: S$2.21
Newstead’s stores occupied ~0.2-0.4% of the affected mall’s retail NLA. Hence, minimal impact on DPU. Newstead reserved 4.5% of the total retail NLA of Funan which will only open in 2Q2019.

Rating: ADD, Target Price: S$2.49
Newstead’s stores occupied ~0.5% of Causeway Point’s total retail NLA. Hence, minimal impact on DPU.

Rating: ADD, Target Price: S$2.08
Newstead’s stores occupied ~0.4% of Suntec Mall’s total NLA. Hence minimal impact on DPU.
Malls affected by the liquidation of Newstead

Mall affected	Brand operating	Store level	% of retail space occupied	Owned by	Status
Bedok Mall	nubox	Level 1	~0.4	Capitaland Mall Trust	Open
Raffles City (40% owned)	nubox	Level 3	~0.2	Capitaland Mall Trust	Open
Tampines Mall	nubox	Level 1	~0.3	Capitaland Mall Trust	Open
Causeway Point	nubox	Level 1	~0.5	Frasers Centrepoint Trust	Open
Suntec City	Newstead Technologies	Level 1	~0.4	Suntec REIT	Closed
			CGS-CIMB RESEARCH, COMPANY REPORTS

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-09

SGX Stock Analyst Report HOLD Maintain HOLD 2.210 Same 2.210

ADD Maintain ADD 2.490 Same 2.490

ADD Maintain ADD 2.080 Same 2.080