Broker's take: S-Reits' exposure to Robinsons owner in spotlight as more brands may close

DBS Group Research on Monday noted that the fortunes of retail-focused Singapore-listed real estate investment trusts (S-Reits) are "closely tied" with that of beleaguered Robinsons Singapore's owner.

More brands under Dubai-based conglomerate Al-Futtaim, which owns the department-store operator that's now in liquidation, may also follow suit with closures, the research team wrote.

The Al-Futtaim group is larger than most might think - it's most of the biggest brand representatives in Singapore. Its brands in the city-state include household names such as Marks & Spencer, Zara and Mango.

Across its 23 brands in Singapore, Al-Futtaim has 111 retail outlets, and about half (56) of these stores are located in S-Reits' malls, DBS analysts Geraldine Wong, Derek Tan and Rachel Tan said in a note on Monday.

The exit of Robinsons may not be a one-off occurrence among Al-Futtaim's portfolio of brands, given the ongoing pressures due to capacity and travel limits, the analysts added.

Retail S-Reits with the largest exposure to the group by store count are CapitaLand Mall Trust (CMT) with 15 outlets, and Frasers Centrepoint Trust (FCT) with 11, according to DBS.

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CapitaLand also rents to nine Al-Futtaim brands in total, at its Jewel Changi Airport and Ion Orchard.

Likewise, owners of malls in the Orchard shopping belt - such as Starhill Global Reit with nine stores, Lendlease Global Commercial Reit with seven and Mapletree Commercial Trust's (MCT) VivoCity with eight - have close landlord-retailer relationships with the group, said DBS.

This comes as fashion retailers remain in consolidation mode. The shift to work-from-home practices amid the coronavirus pandemic has led to plunges in portfolio retail sales in fashion.

DBS thus believes most retail brands may look to rationalise their footprint in 2021, and will likely carefully review any shop closures on a store-by-store and brand-by-brand basis to maximise profitability.

"Over time, we believe that the dominant malls across Singapore will continue to attract tenants to maintain their occupancies in the longer term," the research team wrote.

It favours CMT, FCT and Lendlease Reit, which hold "dominant" malls with characteristics that allow them to attract tenants, keep occupancies higher than the rest of the industry, and thus navigate well past the evolving retail landscape.

Robinsons last Friday confirmed it is shuttering for good after more than a century in the business, weighed down by losses in recent years. Some 175 employees will be affected by the closure.

"While the timing came as a surprise to many, we note that department-store formats have been struggling for years, and the inability to establish an omni-channel presence has resulted in department stores rationalising their footprint over time," DBS wrote.

Putting further pressure on their revenues is the Covid-19 pandemic, which has led to restrictions on department stores from holding "atrium sales".

Following Robinsons' collapse, the spotlight is now also on S-Reits' department-store exposure, which ranges between 7 per cent and 21 per cent of gross revenues for Singapore.

Robinsons' department stores contributed about 7 per cent of revenues for CMT, although the Reit's merger with CapitaLand Commercial Trust is estimated to bring this exposure down to less than 2 per cent, DBS said.

Other department-store operators in the Republic include CK Tang Limited's Tangs, which is a tenant of MCT, and mainboard-listed Metro Holdings, which is a tenant of FCT and SPH Reit. Isetan Singapore, itself listed on the Singapore bourse, has a store in Tampines Mall, under CapitaLand Integrated Commercial Trust's portfolio. (see amendment note)

Department stores usually stand as anchor tenants within malls, given the large percentage of net lettable area they lease. The exit of such anchor tenants may thus result in a "black hole" in shopping centres, DBS noted.

"Landlords may have to get creative with the extra plot of space with the option to either find another anchor tenant to take up the entire space, or divide the retail plot into smaller ones with rental upside potential and consider the overall positioning of the asset going forward," the analysts said.

Among DBS's stock picks, CMT - which will be renamed CapitaLand Integrated Commercial Trust on Tuesday - was trading at S$1.74 as at 1.29pm on Monday, up S$0.01 or 0.6 per cent.

FCT units fell S$0.01 or 0.5 per cent to trade at S$2.10, while Lendlease Reit dropped 0.5 Singapore cent or 0.8 per cent to 60.5 cents.

Amendment note: An earlier version of this article stated that Isetan Singapore has no exposure among S-Reits. Isetan in fact has a store in Tampines Mall, held by CapitaLand Mall Trust, which has since merged with CapitaLand Commercial Trust to form CapitaLand Integrated Commercial Trust.