Retail REITs Sector Outlook - Maybank Kim Eng 2019-04-17: Sector Stablised; Exposure Via Destination Malls

Retail REITs Sector Outlook - Maybank Kim Eng Research| SGinvestors.io CAPITALAND MALL TRUST (SGX:C38U) FRASERS CENTREPOINT TRUST (SGX:J69U) MAPLETREE COMMERCIAL TRUST (SGX:N2IU) SPH REIT (SGX:SK6U) STARHILL GLOBAL REIT (SGX:P40U)

Retail REITs Sector Outlook - Sector Stablised; Exposure Via Destination Malls

  • Analyst sector view: NEUTRAL


Destination or suburban malls better positioned in retail

  • We expect REIT owned malls to outperform the broader retail market, with leasing demand supported by F&B offerings and activity-based tenants. Tourists’ shopping receipts, though, have been declining against growth in visitor arrivals.
  • We expect retail supply to peak this year with April’s opening of Jewel at Changi Airport, which adds to competition and rents in eastern Singapore.
  • We also think larger destination malls, such as VivoCity and Causeway Point will perform better in shopper traffic and tenant sales growth.


New Master Plan could support long-term DPUs, benefit Mapletree Commercial Trust (MCT)

  • S-REITs’ longer-term DPUs could be supported by the Urban Redevelopment Authority Draft Master Plan 2019, released on 27 Mar 2019, which maps out the government's plans for land use over the next 10-15 years.
  • There are plans to allow more homes to be built in the CBD and Marina Bay area to boost live-in populations in areas dominated by offices currently; the plan is to offer developers a higher gross plot ratio of 25-30% to convert older offices into hotels and residential units - with the CBD incentive scheme applied to the Anson Road, Cecil Street, Shenton Way, Robinson Road and Tanjong Pagar precincts. This initiative could further tighten office supply and rents, including fringe business parks, in our view.
  • MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s VivoCity occupancy has held up well, with DPU support from its recently-completed AEI; its diversified commercial portfolio could benefit from stronger business-park and office rents. 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 rising DPU growth levers.


What could go wrong? The key risks to our view

  • The key upside risks to our forecasts are:
    1. better-than-expected leasing demand for retail space driving improvement in occupancy;
    2. stronger-than-anticipated rental reversions; and
    3. accretive acquisitions or redevelopment projects.
  • Downside risks are
    1. prolonged slowdown in economic activity that could reduce demand for retail space resulting in lower occupancy and rental rates; and
    2. sharper-than-expected rise in interest rates which could increase the cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.


Valuations – Sector has done well, now implying lower yields

  • CapitaLand Mall Trust’s share price action has been strong, partly driven by its Westgate acquisition announced in Aug 2018.
  • CAPITALAND MALL TRUST (SGX:C38U)’s shares now yield 4.9%, close to 1 SD below its 16-year average of 5.4%, and both consensus’ and our forecasts have factored a strong 7.0% y-o-y rebound in DPUs for FY20 with the opening of Funan.


Frasers Centrepoint Trust (FCT) is our top retail REIT pick

  • FRASERS CENTREPOINT TRUST (SGX:J69U) is our only BUY among retail REITs for its strengthening suburban-mall footprint, visible growth drivers and potential acquisition catalysts. Gearing of 28.8% and SGD800m of debt headroom should support acquisitions.
  • Sponsor FRASERS PROPERTY (SGX:TQ5)'s pipeline assets – Northpoint City’s South Wing and 33% interest in Waterway Point - could strengthen its suburban footprint.



See also






Singapore Research Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-04-17
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.400 SAME 2.400
BUY MAINTAIN BUY 2.600 SAME 2.600
HOLD MAINTAIN HOLD 1.800 SAME 1.800
HOLD MAINTAIN HOLD 1.050 SAME 1.050
HOLD MAINTAIN HOLD 0.700 SAME 0.700



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