As Metro contemplates the potential closure of its two remaining outlets in Singapore, DBS Group Research analysts Geraldine Wong and Derek Tan weigh the implications its closure will have on SPH REIT and Frasers Centrepoint Trust (FCT).
There are several years left on the lease at Metro Causeway Point under FCT and at SPH REIT’s Paragon, where Metro stands as an anchor tenant.
The department store is one of the top 10 tenants by gross rental income (GRI) for both SPH REIT and FCT based on its latest annual report.
For the former, exposure appears to be “material” for Paragon Mall, according to Wong and Tan.
Metro has been at Paragon for many years and occupies a corner of the mall where there is less traffic.
For more stories about where the money flows, click here for our Capital section
Should Metro decide to close its stores, SPH REIT will have to find another anchor tenant to “pull” traffic to the mall.
For FCT, Wong and Lai see the income risk may be minimised with the contribution from the PGIM portfolio. Furthermore, Metro’s space in Causeway Point is in a “relatively desirable” location with good frontage, which means that a new anchor can easily be found in the event of Metro’s closure.
On the retail scene, Wong and Lai view the remaining department store tenants such as Isetan, BHG, Takashimaya, Tangs and OG as battling the same pressures due to the pandemic.
However, most are not refreshed or up to date in terms of refurbishments and store formats as compared to single-brand stores.
Citing the example of Raffles City’s concept department store with BHG, Wong and Lai view the new store as putting a futuristic spin on traditional department stores.
This, they say is vital, as department stores take “a last lap of reimagination” despite being late to the game.
The key question, they ask, is if the new concept will capture the “eyes, hearts and wallets of consumers” and carve out a new path of survival for other stores to emulate.
SEE: Metro Holdings' student accommodation fund acquires property in Bristol, UK for $54.8 mil
Despite the pressures facing retail stores, not all is doom and gloom, note the analysts.
“Corresponding to this jump in trade sector classification from department stores to beauty and health, landlords would also be able to reap higher rents on smaller retail plots in comparison to rents on anchor space,” they write.
“We think that this can neutralise some of the rental pressure, should landlords be able to slice up anchor space to release as smaller retail plots. Demand and interest should stay high for these dominant malls and it is only going to be a matter of price,” they add.
To this end, Wong and Lai have rated SPH REIT at “hold” with a target price of 80 cents, and “buy” on FCT with a target price of $3.
Units in SPH REIT and FCT closed flat at 83 cents and 1 cent higher or 0.4% up at $2.62 respectively, on Feb 3.
