First take on FCT, MINT, SGREIT results

■ FCT enjoyed higher tenant sales while SGREIT saw lower rent rebates.
■ MINT benefited from contributions from new acquisitions while portfolio rents and occupancy remained relatively unchanged qoq.
■ Reiterate Add rating for FCT, MINT and SGREIT.

FCT’s 1QFY22 tenant sales recovered to pre-Covid 19 levels

On a portfolio basis, FCT’s occupancy remained stable at 97.2% in 1QFY22. Retail malls’ occupancy rates were relatively stable qoq (-3% pts to +1% pts) but its only office asset, Central Plaza, saw a drop of 20% pts qoq to 71.1%, due to the exit of an anchor tenant. Although shopper traffic in 1QFY22 remained at 54-66% of pre-Covid 19 levels, tenant sales tracked close to pre-Covid 19 levels in Oct and Nov 2021 and exceeded pre-Covid 19 levels in Dec 2021. Leasing traction in 1QFY22 was good with only 22.8% (from 35.6% as at 4QFY21) by gross rental income to be renewed in FY22. We expect easing rental pressure as tenants adapt to the new norm. FCT’s expansion focus still remains on Singapore suburban retail assets. Its healthy gearing of 34.5% will support inorganic growth. We expect FCT to outperform its peers in operating metrics given its pure focus on suburban malls. Reiterate Add with an unchanged DDM-based TP of S$2.92.

Lower rental rebates boosted SG REIT’s 1HFY22 performance

SG REIT’s 1HFY22 DPU of 1.78 Scts (+2.3% yoy excluding the effect of deferred income distribution) came in line at 50.6% of our FY22F forecast. 1HFY22 revenue and NPI increased 2.9% and 7.2% yoy, respectively, driven by lower rental assistance and cessation of rental rebates in Malaysia on the completion of asset enhancement works at The Starhill in Dec 2021. All major markets reported stronger NPI yoy except for Wisma Atria retail due to weaker rental income. Portfolio actual occupancy improved from 96.8% to 96.9% qoq, driven by higher occupancy of Singapore retail and Australia portfolio. Shopper traffic at Wisma Atria increased c.19% yoy in 1HFY22 and improved on a mom basis in 2QFY22, driven by looser Covid-19 measures. Tenant sales, however, dropped 2.8% yoy in 1HFY22 due to lack of tourists. The gradual relaxation of Covid-19 measures should help ease pressure on rental reversions. SG REIT has only 8.7% of lease expiries remaining in FY22 which minimises the potential impact from negative rental reversion. The stock is trading at attractive yield of >6%. Reiterate Add with DDM-based TP of S$0.71.

MINT’s higher 3Q DPU lifted by acquisitions and divestment gains

MINT reported 3QFY3/22 DPU of 3.49 Scts, +6.4% yoy, thanks to contributions from the US data centre (DC) portfolio acquired in Jul 21 and the Virginia DC purchased in 4QFY21 as well as distribution of divestment gain from disposal of 26A Ayer Rajah Crescent. 3Q gross revenue and NPI rose 31.3%/24.1% yoy, respectively. Portfolio occupancy ticked down slightly qoq to 93.6%, due to lower US portfolio occupancy while Singapore occupancy rose 0.1% pt to 93.7% with higher take-up at business parks and stackup/ramp-up properties. Rent reversions in Singapore also appeared to remain stable, with 1.05m sqft of leases renewed/signed in 3Q. Rent arrears remained stable qoq at 1% of previous 12 months’ gross revenue. MINT has a remaining 1.4% of leases expiring in 4Q and a further 16% in FY23F, mainly from the flatted factories and hi-tech buildings. On capital management, MINT has increased its proportion of fixed rate debt to 79.7% (vs. 57.7% in 2Q) as well as reinstated its distribution reinvestment plan. MINT’s gearing stands at 39.9% at end-3Q. The trust has also announced the proposed divestment of 19 Changi
South Street 1 for S$13m, to be completed in 1HCY22. We reiterate our Add rating and DDM-based TP of S$3.16.

REITs’ operating performances remain on track or slightly above our projections

So far, REITs that have reported their results achieved in-line or slightly better-thanprojected DPUs, led by stable or improving yoy operating performance. Overall portfolio occupancy remained high, while retail REITs like FCT showed that suburban malls remained resilient with tenant sales improving yoy in Dec 21, while SGREIT’s downtown malls benefited from lower rental assistance and lesser allowance for rental arrears, although operating conditions remains challenging. Meanwhile, improved performance for industrial REITs was due to inorganic portfolio expansion, even as operating performance remained stable qoq. Overall, we believe SREITs are on track to achieve our projected sector DPU growth of 5.2% for FY22F. While the near-term performance of SREITs could remain choppy as the market adjusts to the prospect of rising interest rates, we think this could present buying opportunities in the medium term. We reiterate our Overweight sector rating.