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Wed, Dec 09, 2020 – 11:16 am
DBS Group Research believes that retailers and mall owners in Singapore can capture a significant portion of outlet spending from stores, and this will more than make up for the lack of tourism spending in 2021.
Since Singaporeans are still unable to travel due to Covid-19 related restrictions, what they normally spend abroad can now be diverted to the domestic scene.
Retail owners, which include Singapore-listed real estate investment trusts (S-Reits), should take advantage of this “missed opportunity” from locals as tourist shopping traffic remains low, DBS analysts wrote in a report on Monday. Wednesday.
Singaporeans spent $ 24.5 billion in exit expenses in 2017. That equates to about 73-75 percent of the total value of retail sales that Singaporean retailers made locally. It also far exceeded tourism retail spending, which accounted for 20 to 25 percent of total city-state retail sales derived that year, according to DBS estimates.
Given that travel spending by locals equals three times the retail income of tourists, DBS believes that some of this year’s travel savings and pent-up demand from Singaporeans could be reflected in more domestic purchases.
“We see opportunities to be captured within the fashion and apparel, electronics and food and beverage sectors, as consumers open their wallets in the coming months,” said analysts Geraldine Wong and Derek Tan.
Additionally, ongoing consolidations from retailers may be an opportunity for landlords to modify their tenant mix and “right size” their tenant exposure to department stores and brand reps, according to DBS. This will allow Singapore owners to emerge with a renewed offering and stay relevant in the new retail landscape, he added.
For example, the closure of department stores was generally seen as a risk to shopping center owners, given their large retail parcels and anchor tenant positions. But DBS sees opportunities in this field for luxury beauty stands owned by brands like Chanel.
These beauty brands, formerly represented by department stores, can now venture out on their own to open physical storefronts. “We see this as a positive net result and believe that selected shopping malls across the island that enjoy strong traffic and sales will benefit from this trend,” analysts said.
The top picks from S-Reit’s retail research team are CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust (FCT), Lendlease Global Commercial Reit and CapitaLand Retail China Trust (CRCT).
Valuations support a positive weight in the sector, DBS said. Recommends investors to continue investing in their selected retail S-Reits, given the “cyclical rally in sentiment coupled with attractive valuations with a time standard deviation of -0.5 and a strong two-year compound annual growth rate of DPU ( distribution per unit) of 13% (FY20-22) “.
Retailers will continue to streamline their operational footprints, while shopping malls must adapt to the new retail ecosystem amid structurally higher online spending. This also means that retailers are carefully choosing their physical storefronts to maximize visibility and sales, DBS said.
Against this backdrop, shopping centers owned by CICT, FCT and Lendlease Global Commercial Reit will likely emerge as the winners as they can attract tenants to maintain their occupancy over the long term, according to analysts. DBS expects the portfolios of the three S-Reits to recover earlier than the rest of the sector and offer occupancy rates higher than the industry.
In another investigative note on Wednesday, DBS maintained its “buy” call on CICT and raised the price target to S $ 2.50, following the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust to form the combined entity.
The CICT is “big, cheap and cool,” trading at a price close to net asset value, analysts said. And with forward returns of around 6 percent, CICT offers the highest return among its large-cap peers, which trade at a yield of around 5 percent.
As the largest S-Reit, CICT has integrated business assets that are configured to drive the synergistic value of its existing portfolio, DBS noted. Furthermore, its size offers a larger platform and the opportunity to grow with acquisitions of integrated developments, led by the growing global trend of live-work-play.
CICT units were up S $ 0.04 or 2 percent to trade at S $ 2.08 as of 11:03 am on Wednesday.
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