CAPITALAND RETAIL CHINA TRUST (SGX:AU8U)
CAPITALAND MALL TRUST (SGX:C38U)
FRASERS CENTREPOINT TRUST (SGX:J69U)
LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)
MAPLETREE COMMERCIAL TRUST (SGX:N2IU)
Singapore Retail REITs - Poised For Recovery
- Listed landlords outperformed retail sector in overall operational metrics as occupancy remained resilient, supported by positive mid-single-digit rental reversions in 1Q20.
- Preferred sector to ride the gradual reopening of Singapore’s economy, earlier-than-anticipated mall openings will bode well for both landlords and tenants in 3Q20.
- Acquisitions poised for a return in 2H20 if trading metrics support such activities. Frasers Centrepoint Trust, Lendlease Global Commercial REIT may be prime candidates as the managers look to steer them back to the growth path.
- Despite recent rally, the retail S-REITs still trade below NAV at 0.95x vs 10- year average of 1.11x.
- Prefer Frasers Centrepoint Trust, CapitaLand Mall Trust, Lendlease Global Commercial REIT, Mapletree Commercial Trust.
Singapore Retail REITs - Market Feedback
Sector-wide decline in rents, led by fringe region retail spaces.
- Rental Index across the central area, central region and fringe area fell 1.5%, 2.3% and 5.1% q-o-q respectively as the impact of COVID-19 took a toll on leases expiring in the past quarter.
- Among the listed landlords, occupancy saw a similar sector wide dip of 60bps since 4Q19. Rental reversions however, held up relatively well with a positive mid-single-digit average reversion clocked for 1Q20.
Low future supply of prime retail malls.
- Approximately 18,100 sqm of retail spaces were completed in 1Q20, or 30% of total retail pipeline for the year, adding to downtown and suburban retail stock. We continue to take comfort in the low retail supply in 2020 and 2021, which will help cushion a hike in vacancy rates islandwide.
Central retail malls impacted by lower tourist and office worker traffic.
- Retail malls located within the central region were observed to be feeling the brunt from COVID-19 to a greater extent than suburban malls due to the absence of the usual nd office crowd. Tourist arrivals to Singapore in March suffered an 85% y-o-y decline as global travel experienced a cliff drop from border closures and lockdown measures. This was accompanied by the nation’s two-month Circuit Breaker, which mandated office workers within the non-essential trades to work from home.
What are we are watching?
Income retention in 2Q20.
- Selected retail REITs retained 50-80% stributable income in 1Q20, which we estimate will sufficiently tide through operational and interest obligations for the quarter. We anticipate further income retention in 2Q20 by most of the landlords in anticipation of two new COVID-19 bills to be tabled in June to allow tenants to defer rental obligations and mandate landlords to grant rental waivers of up to two months to qualifying SME tenants.
Phased in reopening of retail malls.
- Retail malls and tenants st trade categories (estimated to be c.90-95%) will be given the green light to resume business during phase 2 of post-Circuit Breaker measures, which was announced to be within the first week of July. There is a possibility of an earlier-than-anticipated reopening by mid-June, subject to the pandemic situation remaining stable, which will bode well for both retail landlords and tenants.
Risk of tenant defaults and rent deferrals.
- While we understand test quarter updates that the risk of tenant defaults is low, limited to a handful within the REIT space, this figure may trend up in the coming quarter. We await the fine prints of the COVID-19 bill, which will be tabled in June, to understand the impact of rent deferral on cash flows for the rest of the year.
- Nonetheless, government cash grants and further mandatory rent waivers for qualifying SME tenants should help to suppress the trend of tenant defaults.
Singapore Retail REITs - Key Observations & Drivers of DPU in 1Q20
- All of CapitaLand Retail China Trust’s 13 retail malls in China have since reopened with c.90% of tenants back in operation; portfolio occupancy inched down 1.3ppts to 95.4%.
- Several portfolio reconstitution catalysts to materialise in the short term, including the hohhot bundle swap and further divestment of non-core, master-lease retail malls.
- S$45m of capital reserve to buffer any income loss caused by the current COVID-19 events.
- See CapitaLand Retail China Trust Share Price; CapitaLand Retail China Trust Target Price; CapitaLand Retail China Trust Analyst Reports; CapitaLand Retail China Trust Dividend History; CapitaLand Retail China Trust Announcements; CapitaLand Retail China Trust Latest News.
- CapitaLand Mall Trust's 1Q20 revenue in line with estimates; cash retention of 70% of distributable income to maintain financial fluidity.
- Approximately 90% of tenants will be allowed to resume operations as early as mid-June; recovery to be led by dominant malls (c.52% of FY19 revenue contribution), especially those within the suburban space.
- Proposed merger with CapitaLand Commercial Trust (SGX:C61U) likely delayed to for now, but will give way to a more diversified portfolio and a reduction in exposure to a pure-play retail sector.
- See CapitaLand Mall Trust Share Price; CapitaLand Mall Trust Target Price; CapitaLand Mall Trust Analyst Reports; CapitaLand Mall Trust Dividend History; CapitaLand Mall Trust Announcements; CapitaLand Mall Trust Latest News.
- Frasers Centrepoint Trust retained 50% of 1Q20 DPU or a quantum of c.S$18m to tide through working capital and operational expenses for April and May.
- Portfolio occupancy dipped 1.2ppts to 96.1% while rental reversion was a positive 5.2%.
- Further unwinding of sponsor’s stake in PGIM ARF to lengthen inorganic growth runway as early as 2H20.
- See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Analyst Reports; Frasers Centrepoint Trust Dividend History; Frasers Centrepoint Trust Announcements; Frasers Centrepoint Trust Latest News.
- Results exceeded IPO forecasts for the quarter, with payout ratio to be maintained at 100% as the Lendlease Global Commercial REIT stands on a comfortable liquidity position.
- Central mall, 313@somerset saw tenant sales dipping 15-20% y-o-y, occupancy held steady at 99.2% with reversions positive at +0.6%.
- Additional 1,008 sqm of GFA to be potentially deployed at 313@somerset to remain a work in progress, with c.1.5 years to completion.
- See Lendlease REIT Share Price; Lendlease REIT Target Price; Lendlease REIT Analyst Reports; Lendlease REIT Dividend History; Lendlease REIT Announcements; Lendlease REIT Latest News.
- COVID-19 impact on VivoCity partly mitigated by stable earnings and strong tenant profile at MBC I and MBC II.
- Longer runway of growth driven by the acquisition of MBCII; a larger Mapletree Commercial Trust would now have room to take on development projects (Harbourfront Centre).
- See Mapletree Commercial Trust Share Price; Mapletree Commercial Trust Target Price; Mapletree Commercial Trust Analyst Reports; Mapletree Commercial Trust Dividend History; Mapletree Commercial Trust Announcements; Mapletree Commercial Trust Latest News.
- Bottoming out of rental income as anchor asset, Festival Walk, reopens ahead of expectations.
- Mapletree North Asia Commercial Trust will gradually diversify its exposure away from Festival Walk. In FY21F, Festival Walk is projected to contribute c.55% of NPI vs 62% previously.
- See Mapletree North Asia Commercial Trust Share Price; Mapletree North Asia Commercial Trust Target Price; Mapletree North Asia Commercial Trust Analyst Reports; Mapletree North Asia Commercial Trust Dividend History; Mapletree North Asia Commercial Trust Announcements; Mapletree North Asia Commercial Trust Latest News.
- Positive 6.7% rental reversion across all Singapore retail malls and stable occupancy at 98.9%.
- c.80% cut in DPU for the quarter to retain cash and go towards 2.3 months of rental rebates to selected tenants.
- SPH REIT will unlikely have to provide further rental relief under the Fortitude Budget.
- Mixed outlook for Paragon asset in the face of COVID-19; tenant sales dipped 22% y-o-y.
- See SPH REIT Share Price; SPH REIT Target Price; SPH REIT Analyst Reports; SPH REIT Dividend History; SPH REIT Announcements; SPH REIT Latest News.
- All four of Sasseur REIT’s outlet malls are now in full operation and reopened to an encouraging 129% hike in tenant sales.
- 70% fixed rental income at an escalation of 3% per annum should provide a buffer to revenues.
- Lowest gearing within the sector at c.28% gives Sasseur REIT sufficient gun powder for yield-accretive acquisitions, which we have not priced into our model.
- See Sasseur REIT Share Price; Sasseur REIT Target Price; Sasseur REIT Analyst Reports; Sasseur REIT Dividend History; Sasseur REIT Announcements; Sasseur REIT Latest News.
Valuations
Current trading yields worth accumulating.
- The retail REITs are currently trading at an average P/NAV of 0.9x, between -1 standard deviation (SD) and -2 SD levels on historical 5-year range. Frasers Centrepoint Trust and Mapletree Commercial Trust are currently trading above average mean at 0.96x and 1.12x P/NAV respectively. Share price resilience stems from Frasers Centrepoint Trust’s full exposure within the suburban retail mall space, which we anticipate to lead recovery once malls reopen, and Mapletree Commercial Trust’s 60% exposure to business park and offices, which is relatively sheltered from the impact of the pandemic.
- REITs with exposure to central retail malls (CapitaLand Mall Trust, SPH REIT and Lendlease Global Commercial REIT) will likely lag in footfall recovery in office worker shopper flow while tourist traffic is unlikely to see normalisation in the immediate-to-short term.
Low gearing and acquisition opportunities likely delayed to beyond FY20.
- The subsector’s average gearing of 34.4% stands as the lowest within the sector, which average at 36.4%. Inorganic growth opportunities are unlikely to be reflected in currently valuation levels as opportunities will likely be delayed to 2H20 and beyond to ensure yield accretion. We have not assumed additional acquisitions at our current target price for the sector.
See PDF report attached below for more details.
- See also recent report: Singapore Retail REITs - DBS Research 2020-05-29: Near The End Of A Storm.
Singapore Research
DBS Group Research
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Derek TAN
DBS Research
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https://www.dbsvickers.com/
2020-06-03
SGX Stock
Analyst Report
1.550
SAME
1.550
2.150
SAME
2.150
2.650
SAME
2.650
0.89
SAME
0.89
2.250
SAME
2.250
