Singapore Retail REITs - DBS Research 2022-06-23: Mercatus ~ Prized Retail Portfolio Up For Grabs

Singapore Retail REITs - Mercatus ~ Prized Retail Portfolio Up For Grabs

Singapore Retail REITs - DBS Group Research | SGinvestors.ioFRASERS CENTREPOINT TRUST (SGX:J69U) LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) CAPITALAND INTEGRATED COMM TR (SGX:C38U)
  • Possible landmark transaction involving Mercatus’s four dominant suburban retail malls to mark the “real estate deal of 2022”.
  • Singapore real estate allures international investors as a store of wealth; retail incumbents will be keen to get their hands on it.
  • Suburban capital values to remain resilient despite rising interest rates, ahead of expectations.
  • Pick Frasers Centrepoint Trust and Lendlease REIT to benefit if transaction materialises.

Possible landmark transaction involving Mercatus’s retail mall portfolio will be keenly watched.

  • Mercatus is looking at possibly divesting its stakes in four suburban retail malls (AMK Hub, Jurong Point, NEX, and Swing By @ Thomson Plaza) for a reported ~S$4.0bn. We are excited by this sizable opportunity, given the lack of tight ownership of retail real estate in Singapore.
  • With dominant attributes like being located in key transport nodes and positioned mainly in the “essential services” sector, these malls have been proven to churn out resilient cash flows during testing times, and will attract robust interest. Operational performance has rebounded in FY21 to ~96% of pre-COVID levels and should continue to head higher in FY22.
  • Assuming a 68%-70% operational margin, we estimate FY21 yields to range between 4.3%-4.4% (pre-COVID yields were 4.6%-4.8%), which is at a similar level to recent transactions within the retail space.

Singapore real estate’s enduring allure likely to evoke strong interest amongst the local incumbents.

  • Singapore real estate is seen as a store of value within Asia, and thus attracts international capital. That said, we believe that this retail portfolio is likely to attract local incumbents with retail operator-backed sponsors, given that “getting it right” in retail real estate is more about managing the property well rather than getting the timing of the real estate cycle right.
  • Given the sizable portfolio, we anticipate that listed REITs like CapitaLand Integrated Commercial Trust (SGX:C38U), Frasers Centrepoint Trust (SGX:J69U), and Lendlease REIT (SGX:JYEU), working together with their respective sponsors or even developers like City Developments (SGX:C09) and Far East Organisation, will be keen to get their hands on this portfolio.

What it means for suburban retail landlords.

  • We see a structural trend in place for suburban retail real estate anchored by
    1. the “premiumisation of retail offerings” supported by higher income growth in Singapore’s population in the long term and
    2. structurally higher traffic, given a new hybrid working trend.
  • We are seeing this already in the numbers, with Frasers Centrepoint Trust reporting tenant sales from Jan 22-May 22 that are, on average, 110% of pre-COVID levels. Trading at an implied cap of 4.5%, we see value in Frasers Centrepoint Trust and reiterate our BUY call.
  • Lendlease REIT’s recent value-accretive pivot into the suburban retail space will drive a compression in yields over time.




Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.




Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-06-23
SGX Stock Analyst Report BUY MAINTAIN BUY 3.000 SAME 3.000
BUY MAINTAIN BUY 1.100 SAME 1.100
BUY MAINTAIN BUY 2.700 SAME 2.700




Read also DBS Research's most recent report:
2022-10-25 CapitaLand Integrated Commercial Trust - Recovery Surpassing Pre-COVID

Target prices by 3 other brokers at CapitaLand Integrated Commercial Trust Target Prices.
Listing of broker reports at CapitaLand Integrated Commercial Trust Analyst Report.

Relevant links:
CapitaLand Integrated Commercial Trust Share Price History,
CapitaLand Integrated Commercial Trust Announcements,
CapitaLand Integrated Commercial Trust Dividends & Corp Actions,
CapitaLand Integrated Commercial Trust News Articles





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