The Positives
+ Retail occupancy of 97.2% surpassed FY19 levels (96.5%). 1Q22 occupancy was 2.1ppts higher YoY (1Q21: 95.2%), with six out of nine malls achieving occupancies between 97-100%. Laggards in the portfolio are Century Square (91.1%), Changi City Point (92.6%) and White Sands (92.5%). Changi City Point is located near business parks and the Singapore Expo. Tenant demand for the asset was weaker as it was impacted by lower footfall due to remote working and absence of trade shows and events. 2021 was a major renewal year for Century Square and Tiong Bahru Plaza as both assets underwent AEI and repositioning three years ago. The unfortunate timing of lumpy expiries during the pandemic has led to slower absorption of space.
+ Healthy leasing momentum – 14.4% of GRI de-risked. Lease expiries by GRI for FY22 reduced from 37.2% to 22.8%. As at end-Jan 22, half or remaining FY22 expiries (c.11%) have been committed or are under advanced negotiation. While no reversion number was disclosed, we understand that the reversions have improved from FY21’s -0.6%.
+ November and December’s tenant sales reached 101% and 106% of pre-pandemic levels due to increase in dine-in group size from two to five pax and festivities, benefitting F&B and jewellery and watch tenants.
The Negatives
– Occupancy at Central Plaza fell from 91.8% to 71.7% following the exit of an anchor tenant occupying a few lower floors. Anchor tenants are usually offered more favourable rates. As such, FCT could see positive reversions should the space be subdivided out and leased to multiple tenants. FCT is also exploring leasing the space out to quasi-retail tenants such as clinics and services as Central Plaza is connected to Tiong Bahru Plaza via a linkway on the second floor. Either strategy should yield higher rents compared to the rents charged to the anchor tenant. However, the multi-tenant lease strategy may result in a longer void period required to lease all the available floors.
Outlook
Return to normalcy to provide more even recovery among tenants. While tenant sales have recovered to pre-pandemic levels, recovery varies among and within trade sectors. For instance, kiosk and easy-takeaway F&B tenants located along the walkways to the MRTs may see a pick-up in sales due to incidental spending from more employees returning to the office. Fashion and other sit-down F&B tenants may benefit from the larger group sizes and resumption of events.
Maintain BUY, TP lowered from S$2.83 to S$2.64
FY22e-265e DPUs have been lowered by 3.0-5.3% on the anticipated rising cost of borrowing. Our DDM-based TP dips from S$2.83 to S$2.64 on lower DPU estimates and higher cost of equity of 6.48% assumption (previous 6.38%). The current share price implies FY22e DPU yields of 5.7%.
Catalysts include asset-enhancement initiatives, acquisitions from its sponsor’s pipeline of assets, or acquiring or partnering companies with only one mall in their portfolios. The cost of implementing and maintaining loyalty programmes or omnichannel retailing is higher for single-mall owners, which may present acquisition opportunities.
