LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)
FRASERS CENTREPOINT TRUST (SGX:J69U)
Singapore Retail REITs - On Track For A Recovery
- Tenant sales recovery has been holding up well till Sep-Oct while malls’ carpark vacancy has been trending down in the past 1-2 months.
- We expect tenant sales to improve further, though rental pressure remains.
- Sector trading below 5-year mean at 1x P/BV. We prefer Frasers Centrepoint Trust and Lendlease REIT.
Tenant sales and shopper traffic recovery holding up
- Overall Singapore retail sales excluding motor vehicles have been encouraging, with y-o-y decline narrowing from -46% in Jun to -7%/-8%/-13% in Jul, Aug and Sep. The larger decline in Sep was mainly due to the high base effect last year when there were new mobile phone launches.
- The improvement in retail sales was reflected in the performance of CapitaLand Integrated Commercial Trust (SGX:C38U), Frasers Centrepoint Trust (SGX:J69U) and Mapletree Commercial Trust (SGX:N2IU) which reported their monthly operating metrics recently.
- Frasers Centrepoint Trust’s tenant sales have almost recovered to pre-COVID-19 level in Oct 2020 (-1.8% y-o-y) while shopper traffic was at 60% of last year’s.
- Mapletree Commercial Trust’s Jul-Sep 2020 tenant sales sustained at 70-80% of last year’s level while shopper traffic was at 45-50% of Jul-Sep 2019.
- As for CapitaLand Mall Trust (now CapitaLand Integrated Commercial Trust), it saw improvement in shopper traffic towards end-Sep, driven by both downtown and suburban malls. CapitaLand Mall Trust’s 3Q20 overall tenant sales recovered to 89% of last year’s level, an improvement from 1H20.
Malls’ carpark vacancy trending down in past 1-2 months
- Carpark vacancy of the malls we track has been trending down in the past 1-2 months although not yet back to pre-COVID-19 levels. This indicates that tenant sales and shopper traffic are likely to sustain at current levels or improve from Sep/Oct.
- We expect shopper traffic and tenant sales to continue to improve in Dec, driven by year-end festivities and sales, as Singaporeans divert their spending from overseas to shopping locally.
- In 2021F, tenant sales and shopper traffic should be supported by the return of the office crowd as the nation enters phase 3 of its economic reopening. The lack of tourists, however, could cap recovery below pre-COVID-19 levels for touristy malls.
Weak rental reversion inevitable but there could be upside potential
- Overall, we expect malls’ occupancy rate to remain high at 95-99% but rental reversion would be under pressure near term. We expect low to high single-digit negative rental reversion for FY21F, with downtown malls more impacted than suburban malls.
- Lease structures would likely build in a higher turnover component in the initial stages, with step-ups in the later stages. Hence, there could be upside potential if the trading environment improves. REITs with fewer lease expiries in 2021 should fare better.
- We do not expect much impact from rental rebates in 2021F as we believe rebates would be in a much smaller scale as landlords shift their focus from direct rebates to marketing.
Sector trading below mean; we prefer Frasers Centrepoint Trust and Lendlease REIT
- Retail REIT is currently trading at 1x P/BV below 5-year mean of 1.1x and pre-COVID-19 peak of 1.2x P/BV (Jun 19). We expect retail REITs with a focus on suburban malls or a mixed portfolio with offices to fare better than pure retail REITs.
- Our preferred stocks are Frasers Centrepoint Trust (SGX:J69U) and Lendlease REIT (SGX:JYEU).
- See recent reports:
- Upside risks for the sector include better-than-expected rental reversion.
- Resurgence of COVID-19 cases is a key downside risk.
EING Kar Mei CFA
CGS-CIMB Research
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LOCK Mun Yee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-12-04
SGX Stock
Analyst Report
0.854
SAME
0.854
2.890
SAME
2.890
