+ Slight recovery in tenant sales. Tenant sales ticked up slightly by +0.5% YoY in FY18 (no change YoY in FY17), with recovery in more trade categories this year (just four categories with negative sales growth in FY18 versus eight categories in FY17). Categories that turned around to clock in positive tenant sales growth in FY18 include Food & Beverage, Fashion, and Beauty & Health – the top three trade categories by gross rental income (GRI).
+ Stable portfolio occupancy amidst AEI works at Westgate and Tampines Mall. Occupancy was maintained at 99.2%, with >99% occupancy achieved at its top four malls (by GRI) – Plaza Singapura, IMM, Bugis Junction, Tampines Mall, in spite of the AEI works that were done at Tampines Mall and Westgate. Tenant retention rate was also stable at 82.3% (FY17: 79.3%).
– Still-weak rental reversions. On a portfolio basis, rental reversions barely moved a percentage point in FY18, despite the underlying recovery in tenant sales growth.
– Deteriorating balance sheet metrics. Consolidation of debt from Infinity Mall Trust (which holds Westgate) has now resulted in a shorter term to maturity of 4.4 years (3Q18: 5.2 years) and a higher leverage of 34.2% (3Q18: 31.7%). In addition, Westgate has now been pledged as collateral – all other assets are still unencumbered.
AEIs at Tampines Mall (completed Oct 2018) and Westgate (completed Dec 2018) could bring in higher footfall and tenant sales – and this is starting to be evident in the turnaround in rental reversions recorded in FY18 (positive rental reversions for both malls compared to negative reversions in FY17). Another near-term growth catalyst would be the upcoming completion of Funan which is slated to open in June 2019. As at end-December, 80% of leases at Funan have been pre-committed or are under active negotiations.
Maintain NEUTRAL with unchanged TP of S$2.09.
This translates to a FY19e yield of 5.6% and P/NAV of 1.06x.