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Mon, Aug 31, 2020 – 12:04 pm
DBS Group Research on Monday called malls with suburban features a “safer bet” compared to tourism-focused Orchard Road malls, which are likely to lag behind and not return to optimal capacity given the lack of tourists in the short term.
However, a surprise may come from more office workers returning to offices by the end of 2020, DBS analyst Derek Tan said in a research note.
The research team said it continues to bet on shopping malls with suburban characteristics, and its main options remain Frasers Centrepoint Trust (FCT), CapitaLand Mall Trust (CMT) and LendLease Global Commercial Reit.
DBS said the sharp spike in shopper traffic in shopping malls has not been discounted. Its parking tracker and weekly site visits mean shopping malls are seeing constant traffic, while lines for restaurants have returned.
While traffic and sales reported by various Reits in 2020 “look weak,” DBS said it believes “the tide has turned.”
“If our reading of the terrain is correct, we see further compression in the gap with Covid-19 traffic and the sales figures will reach the third quarter of 2020 with upside potential,” Tan said.
Since the borders have yet to be reopened, consumers can spend at local malls, catalyzed by attractive marketing and discounts offered by retailers.
“The worst is over, but the recovery is just underway,” Tan said.
DBS projects a 19.7% increase in per unit distribution for fiscal 2021 and a forward sector return of 6.7%.
He said investors may have sidelined the growth momentum despite strong support for the sector in the form of government grants and homeowner exemptions to help retailers. The research team considers that the liquidity shield through income retention is sufficient to see the various Reits through the last stage of the Covid-19 crisis.
DBS has maintained the “buy” on FCT with an increased target price of S $ 2.95 from S $ 2.65. The new target price implies a dividend yield for fiscal 2021 of 4.3 percent and a target price / book ratio of 1.45 times.
The research team has maintained the “buy” in CMT with a high price target of S $ 2.40 from S $ 2.15. The new target price implies a price-to-book ratio of 1.13 times and a forward dividend yield of 5%.
DBS maintained its “call” option on LendLease Global Reit with a reduced price target of S $ 0.85 from S $ 0.94. The revised target price is included in conservative estimates for fiscal 2020/2021 with a 6 percent target return on its revised forecast for fiscal 2021 earnings and an implied price to net asset value ratio of 1.0 times.
At 11:33 a.m. M., FCT units were trading 0.8% or S $ 0.02 higher at S $ 2.49, CMT units were up 2.6% or S $ 0.05 at S $ 1, 95 while Lendlease Global Reit units were up 0.8% or 0.5 Singapore cents to 64.5 cents.
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