Singapore REITs 2019 Outlook - Maybank Kim Eng 2019-01-17: Retail’s Cyclical Upturn; Large Destination Malls Provide Better Exposure

SGinvestors.io

CAPITALAND MALL TRUST (SGX:C38U) FRASERS CENTREPOINT TRUST (SGX:J69U) MAPLETREE COMMERCIAL TRUST (SGX:N2IU) SUNTEC REAL ESTATE INV TRUST (SGX:T82U) SPH REIT (SGX:SK6U)

Singapore REITs 2019 Outlook - Retail REITs

Retail’s cyclical upturn; large destination malls provide better exposure

• We see retail REITs delivering the strongest DPU growth in 2019 on the back of their cyclical recovery. Rents stabilised in 4Q18, with those at prime Orchard Road and suburban malls up 1.3% y-o-y and 1.2% y-o-y respectively on the back of strong occupancies.
• Mall owners and REITs have been proactive in leasing and we expect REIT-owned malls to continue to outperform the broader market.

F&B offerings and activity-based tenants should continue to lead leasing demand.

• F&B offerings and activity-based tenants should continue to lead leasing demand. The latter has large space needs:
  • Timezone opened its 12,000 sf flagship family arcade in VivoCity in early 2018;
  • a 40,000 sf indoor park operated by SuperPark opened its doors in Suntec City in 4Q18;
  • Marina Square will welcome Nerf Action Experience which will take up 18,000 sf this quarter.
• F&B tenancies have also grown steadily. We expect them to remain above 30% in retail malls in 2019E to support occupancies.

Tourism shopping receipts, though, were down 15% y-o-y in 6M18, their steepest decline after GFC.

• This was against a 7.7% y-o-y increase in arrivals. Retail supply is also expected to peak in 2019 with the opening of Jewel at Changi Airport in 1Q19. Jewel is expected to add to the competition and pressure on rents in the east. 
• That said, we expect a recovery in prime Orchard Road mall rents due to tight supply. We expect further positive rental reversions for Paragon. We also think larger destination malls such as VivoCity and Causeway Point will perform better in shopper traffic and tenant sales growth.

Retail REITs

• CAPITALAND MALL TRUST (SGX:C38U)’s DPUs should be boosted by its acquisition of the remaining 70% interest in Westgate. Its Funan mall is also set to reopen in 1H19. Shopper traffic and tenants for its portfolio have so far trailed peers, but could improve this year.
• MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s VivoCity occupancy has held up well, with DPU support from recently-completed AEI, and Its diversified commercial portfolio could see DPUs lifted by stronger rents on business parks and office assets. An asset-swap opportunity has materialised as narrowing office cap rates imply a SGD125m revaluation gain for Mapletree Anson. Elsewhere, a potential MBC II acquisition could boost DPUs by 9-10%. Upside potential could stem from these arising DPU growth levers.
• FRASERS CENTREPOINT TRUST (SGX:J69U) is our only BUY among the retail REITs for its strengthening suburban-mall footprint, visible growth drivers and potential acquisition catalysts. Gearing of 28.6% and SGD500-850m of debt headroom are expected to support acquisitions. Its sponsor’s pipeline assets – Northpoint City’s South Wing and 33% interest in Waterway Point - could strengthen its suburban footprint.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-01-17

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.200 SAME 2.200

BUY MAINTAIN BUY 2.550 SAME 2.550

HOLD MAINTAIN HOLD 1.600 SAME 1.600

HOLD MAINTAIN HOLD 1.940 SAME 1.940

HOLD MAINTAIN HOLD 1.020 SAME 1.020