Suburban malls doing better than those in central region; FCT among top picks: OCBC

Fri, Nov 13, 2020

Rachel Mui

SUBURBAN malls are outperforming those located elsewhere even as online shopping gains in popularity, OCBC says.

In a commentary on Singapore retail real estate investment trusts (Reits), OCBC credit analyst Seow Zhi Qi noted that online sales rose to a high of S$479 million in June to account for 18.7 per cent of total sales.

Online sales made up 5 per cent of total sales in 2018, and 5.8 per cent of sales in 2019. For the first nine months of this year, that ratio rose to 13.1 per cent - a gain that OCBC partially attributed to the Covid-19 pandemic.

"Supporting our view that online sales is a leakage from the brick-and-mortar stores, the sales value generated by brick-and-mortar stores had declined to S$42 billion in 2019, from S$43.5 billion in 2018, and was much lower at S$23.6 billion over 9M 2020, though largely due to Covid-19," wrote Ms Seow.

Over time, she added, delivery services can be expected to become more efficient, reliable and affordable - which will enhance the attractiveness of online shopping.

This does not, however, signal an end to the physical store in Singapore, she noted.

Among other things, location is the key factor that can help to cushion downside impacts, OCBC said.

Suburban malls have outperformed malls located elsewhere, the bank found, with a stronger recovery in footfall and tenant sales in the third quarter this year.

These malls are located within residential neighbourhoods that provide footfall. Suburban malls also provide residents with necessities, OCBC said, which makes them more resilient.

Malls in the central region, on the other hand, do not have as large a natural catchment area and cater more to tourists and local shoppers who have travelled there.

Among the retail Reits under its coverage, OCBC ranked Frasers Centrepoint Trust (FCT) as the most resilient, given it is predominantly a suburban mall Reit. This is followed by CapitaLand Integrated Commercial Trust (CICT), which has a mix of suburban malls and malls located in the central region; Mapletree Commercial Trust, which holds VivoCity; and Starhill Global Reit, which has Wisma Atria and Ngee Ann City in Singapore.

CICT was formed recently, through the merger of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust.

FCT's portfolio includes Causeway Point, Northpoint City, Waterway Point, Changi City Point, YewTee Point, Bedok Point and Anchorpoint. Going by information released by the Reit, tenants' sales have recovered close to the pre-Covid-19 level while footfall has stabilised at 60-70 per cent of the pre-Covid-19 level. The bulk of FCT's top 10 tenants are providers of essential services, such as supermarkets as well as food and beverage (F&B) stores, Ms Seow noted.

OCBC also observed a gradual shift in tenant mix among the Singapore retail Reits.

Over the last five years, FCT's exposure to fashion tenants fell to 13 per cent of gross rental income in Q3 2020, from 21 per cent in Q3 2015, while it recruited more food and beverage (F&B) tenants.

At CMT, exposure to fashion fell to 11 per cent from 15 per cent over five years. Exposure to F&B rose to 31 per cent, up from 27 per cent.

This change in exposure broadly reflects a shift towards tenants that are less sensitive to the online retail trend.

Nevertheless, OCBC noted that malls will continue to experience pains in relation to the Covid-19 pandemic.

"Non-performing tenants would depart, and malls may have to accept negative rental reversion to bring in new tenants," said OCBC's Ms Seow.