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UOBKH: Retail REITs – Singapore (Overweight)

Posted on September 13, 2022September 13, 2022 By alanyeo No Comments on UOBKH: Retail REITs – Singapore (Overweight)
Recovery From Downtown Malls, Resiliency From Suburban Malls

Retailers and F&B operators are back operating at full capacity after the economy reopened in Apr 22. Penetration for e-commerce has receded. Pick-up in visitor arrivals is an added catalyst for downtown malls in 2H22. Downtown malls offer better upside from reopening, while suburban malls are more defensive. Maintain OVERWEIGHT. BUY for FCT (Target: S$2.74), LREIT (Target: S$0.96) and MPACT
(Target: S$2.22).

WHAT’S NEW

• Retailers operating at full capacity without restrictions. Safe distancing between individuals and the cap on group size of 10 persons for dining in at F&B establishments were lifted on 26 Apr 22. Wearing of masks is no longer required indoors starting 29 Aug 22. Masks are only mandatory in two settings: a) healthcare facilities, such as ambulances, hospitals, polyclinics and residential care homes, and b) public transport, such as the MRT, LRT, buses and boarding areas.

• Consumer spending picking up. Retail sales excluding motor vehicles grew 18.1% yoy in Jul 22, the 4th consecutive month of double-digit growth. It increased 10.4% yoy volume-wise after adjusting for inflation at 7.0%. On a seasonally adjusted basis, retail sales expanded 0.5% mom. F&B generated strong growth of 41.9% yoy driven by restaurants (easing of restrictions) and food caterers (return of large-scale events). Apparel & footwear, department stores, watches & jewellery, cosmetics & healthcare and recreational goods registered double-digit growth of 68.3%, 42.9%, 41.7%, 25.5% and 16.9% yoy respectively.

• Online retail sales have normalised lower. Penetration of e-commerce has declined from the peak of 24.5% during Circuit Breaker in May 20 to 12.7% in Jul 22. Physical stores continue to provide irreplaceable shopping touchpoints and experience. They remain relevant to consumers in the densely populated Singapore.

• Tourists returning to shop at Orchard Road. Singapore abolished the requirement for pre-departure COVID-19 tests and fully reopened its international borders on 26 Apr 22. Visitor arrivals have increased 34% mom to 726,601 in Jul 22, reaching 40.3% of prepandemic levels. Indonesia was the top source of arrivals, followed by India, Australia and Malaysia. Visitor arrivals are expected to recover with the Formula 1 Singapore Grand Prix in September and Tour de France Singapore Criterium in October. The return of Mice activities with more than 66 international events in 2H22 will also bring back business travellers.

• Suburban malls fundamentally more attractive. Rents for Orchard Road have stabilised at S$34.20psf/month for the 4th consecutive quarter in 2Q22. Rents for suburban malls maintained its gradual upward trend and increased 1.3% yoy to S$30.20psf/month. The gap in rents between Orchard Road and suburban malls continues to narrow. Occupancy for suburban malls has improved 1.1ppt yoy to 93.7% in 2Q22 compared with trough of 89.3% during the Circuit Breaker in 2Q20.

Retail_REITsClick here to Download Full Report in PDF

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Research - Equities Tags:Capitaland Integrated Commercial Trust, Frasers Centrepoint Trust, lendlease REIT, Mapletree Pan Asia Commercial Trust, Singapore REITs, SPH REIT, SReits, Starhill Global

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