For investors, there are quite a few retail plays to choose from. If buying a retailer is not their fancy, there are the landlords, the retail REITs, too.
CGS-CIMB analyst Eing Kar Mei’s picks within the consumer space are supermarket operators Sheng Siong and Dairy Farm, as well as food court operator Koufu. As for REITs, she likes Lendlease Global Commercial REIT (LREIT) and Frasers Centrepoint Trust (FCT), as both the REITs have a strong presence in Singapore’s suburban areas which are seeing higher shopper traffic as compared to the central areas of Singapore. Eing has “add” calls on the two preferred REITs, with target prices of 85.4 cents for LREIT and $2.83 for FCT.
Although Lendlease is still exposed to the central area of Singapore that depends heavily on tourist traffic, with its 313 @ Somerset mall, it has on Oct 1 announced that it had acquired a 5% stake in Lendlease Asian Retail Investment Fund 3 (LARIF3) — which holds a 75% indirect interest in Jem, one of the largest suburban malls in Singapore. The acquisition stake of 5% translates into an effective 3.75% stake in Jem for LREIT.
FCT has also recently enlarged its portfolio with its acquisition of AsiaRetail Fund (ARF), which upon completion of the acquisition, will bring FCT’s portfolio of retail properties to 11 from seven previously, with still a focus on Singapore’s heartland areas.
“We view the proposed acquisition and disposal positively. We like ARF’s malls as they are strategically located within five minutes walking distance of an MRT station. In addition, four of the five assets are situated in low retail space per capita regions while three of the five malls are dominant malls and hence face little competition in their respective areas,” notes Eing.
However, Eing expects REITs to face some pressure with rents, as they are expected to keep rents low to maintain mall occupancies. “Expect landlords to continue to dish out rental support (more flexible rental structure/rental waivers) but on a targeted basis,” she adds.
PhillipCapital’s senior research analyst Terence Chua also likes FCT for its suburban located malls, as they face a relatively more resilient demand from consumers, compared to malls in the central areas, which are more exposed to tourists.
“We think the impact to the retail industry will be uneven. For the retail segments with a focus on local consumers and consumer staples will likely do better than retail segments that focus on foreigners and consumer discretionary products,” he says.
In its 4Q2020 outlook report, KGI Securities sees value in the retail space. “Given the gloomy outlook for interest rates, in addition to a cap on banks’ total dividends for FY2020 (60% of FY2019’s distributions), we think that REITs will continue to be a favourable opportunity for many investors. Focusing solely on the last quarter of 2020, we think that retail REITs will see a boost given the quick recovery in consumer spending in 3Q2020,” it says.
Overall, KGI believes that retail REITs, as well as pure-play China retail and logistics REITs, are undervalued, considering the “faster-than-expected recovery in retail spending”. “We believe that even if Singapore does experience a mild second wave, there is limited downside to the retail REITs whose prices still seem depressed,” adds the research house.
