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SPH REIT – Contrasting Impact of COVID-19 on Prime and Sub-urban Mall

by: Tam Ging Wien


All examples and stocks quoted here in this article and on the ProButterfly.com and REITScreener.com site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial adviser.


SPH REIT announced its full year FY2020 results ending 31-August-2020. SPH REIT declared a DPU of 1.04c for half year ending 31-Aug-2020. This is a 63.5% fall, compared to the 2.85c in the same period last year.

The manager had decided to defer the payment of $14.5mil worth of dividends citing "prudence in financial management". This deferment is allowed under the MAS COVID-19 relief measures but must be paid out by August 2021. In addition to the $14.5mil dividend deferment, a further $15 million of capital allowance was used to provide for capital expenditure and other requirements.

The Gross Revenue for Paragon and Clementi Mall had fallen by 14.0% and 12.4% respectively. Net Property Income on the other hand had fallen 17.1% and 15.3% respectively. This primarily due to the impact of COVID-19 rental relief granted to eligible tenants amounting to S$31.8mil, this is over and above the government tax reliefs granted.

Overall, the portfolio Gross Revenue and NPI still rose 5.6% and 1.2% respectively due to higher contribution from its Australian assets Figtree Grove and Westfield Marion. The later was acquired just last year. The impact of the The Rail Mall could be considered negligible on the portfolio.

The results of the REIT were somewhat within expectations given to impact of COVID-19 on the retail sector, Singapore economy and general consumer sentiments and the circuit breaker measures. However, what we found interesting was the data provided on Paragon and Clementi Mall which allows us to get a glimpse of the impact of COVID-19 on both the Prime and Sub-urban Mall.

Paragon and Clementi Mall Data Compilation

First off, we decided to compile related data from the historical disclosures from SPH REIT’s presentation slides. We present the tabulated data and year-on-year percentage changes in the tables below. We specifically picked Paragon and Clementi Mall as data that was disclosed are identical from the same landlord but one is a prime retail asset located in the heart of Orchard Road while the other is located at sub-urban township surrounded by high density residential.

This way, we can better quantify and contrast the impact of COVID-19 on the prime vs sub-urban malls in Singapore.


Source: SPH REIT complied by ProButterfly ResearchREITScreener Research


Source: SPH REIT complied by ProButterfly ResearchREITScreener Research

Visualising the Data

Next, using the tabulated data above, we transform the data into various charts to attempt to visualise the data in order to make it easier to extract some observations.


Source: ProButterfly ResearchREITScreener Research


Source: ProButterfly ResearchREITScreener Research


Source: ProButterfly ResearchREITScreener Research

Key Observations from Paragon and Clementi Mall

Now that we have a table and a set of charts, we are ready to do some side-by-side comparison and draw some observations from our data.

1. Paragon Occupancy Rate More Severely Impacted

The most obvious observation that we can draw from the data is that the occupancy rate for Paragon was more severely impacted compared to Clementi Mall. Both malls have historically shown high occupancy rates in the range of 99% to 100%. However, with the onset of COVID-19, Paragon’s occupancy rate fell to 97.8% while Clementi Mall still managed a 99.6%.

Paragon is the larger mall with 717,855sqft of net leasable floor space while Clementi Mall has 195,229sqft.

While in the overall scheme of things, a fall of 2.2% in occupancy rate for Paragon would be considered fairly resilient, it’s clear that the smaller sub-urban cousin is better able to hold on to its tenants.

The nature of the 2.2% that had released its floorspace in Paragon is not disclosed, so we do not know which specific retail sector or specific tenants had let go of its floor space.

2. Gross Revenue and Net Property Income Declined in Clementi Mall Milder

As mentioned above, Gross Revenue for Paragon and Clementi Mall had fallen by 14.0% and 12.4% respectively. Net Property Income on the other hand had fallen 17.1% and 15.3% respectively. This primarily due to the impact of COVID-19 rental relief granted to eligible tenants amounting to S$31.8mil, this is over and above the government tax reliefs granted.

Overall, it does seem that paragon managed a slightly milder decline compared to that of Paragon. This is likely due to a greater decline in the occupancy rate of Paragon.

3. Paragon Valuation Lowered More than Clementi Mall

Valuations for Paragon was lowered by 3.8% while that for Clementi Mall was lowered 2.2%. It seems that the more pronounced impact on the gross revenue, NPI, tenant sales and occupancy rate appears to have impacted Paragon’s valuation more than Clementi Mall’s in percentage terms.

4. Both Malls Achieved Higher Rental Growth

Interestingly, despite the gloomy economic outlook, both malls managed to positive rental growth with Paragon clocking in 7% increase while Clementi Mall clocking 4.8%. This seems to show that the tenants that did renew where willing to pay a higher rental to maintain their floor space.

This is a surprising observation given the current economic situation. But safe to say, those that renewed are tenants which are stronger financially.

This is a trend that is worth observing in the coming quarters as more data points become available, we can better quantify the staying power of the tenants.

5. Tenants Sales in Paragon Closely linked with Foot Traffic

The visitor traffic trends in Paragon had fallen 27.4% and the tenant sales has correspondingly fallen by 28.2%. However, in Clementi Mall, while the visitor traffic had fallen by 27.8%, the tenant sales had only fallen 12.7%.

Its worthwhile to note that SPH REIT’s financial year is from September the year before to August the next year. The impact of COVID-19 would have likely been felt in Singapore from February onwards and most heavily impacted during the circuit breaker months of April and May.

This seems to suggest that tenant sales in Paragon are highly depended on foot traffic. If foot traffic does not pick up, the tenant sales are also likely to remain lacklustre.

6. Per Visitor Spend Grew in Clementi Mall

We derived a metric called “Average Sales per Visitor” by dividing the Tenant Sales (S$’mil) by the Visitor Traffic (’mil). We observe that the “Average Sales per Visitor” in Paragon have been relatively stagnant for the past few years. It is in start contrast with Clementi Mall where the “Average Sales per Visitor” leaped 21.3% from the previous year.

This seems to indicate that while the visitor traffic is proportionally lowered between the 2 malls, each visitor is spending more visit. We suspect this could be due to several factors, we suggest a few possibilities below:

  • Each visitor was buying more per visit as during the circuit breaker months, they stocked up on essential goods
  • Essential services remained open which resulted in higher spend in Clementi Mall
  • More food, groceries and other essential goods where ordered online and delivered from tenants in the malls adding to sales volumes
  • Lower spend on luxury items in Paragon offset by higher spend in other essential goods and services effectively neutralising the per visitor spend

On the Paragon side, we suspect that local spending likely also increased for essential items such as those from residences in the vicinity to Paragon’s Market Place premium supermarket and offset by lower spending in other retail sectors as the foreigner business travellers and tourist foot traffic plunged. This is of course speculation on our part.

If our speculation is right, it seems that the differing nature of the retail options offered, those in the sub-urban malls tend to be in heavier demand.

Concluding Remarks

Looking at various metrices such as gross revenue, net property income, occupancy rates and tenant sales, it appears to suggest that Clementi Mall being a sub-urban retail mall experience milder declines compared to prime malls like Paragon. As a result of that the valuation decline for Clementi Mall was milder than that of Paragon.

We attribute the milder impact of Clementi Mall to a higher proportion of essential services that address the needs of the local population in the vicinity. Retail such as F&B and supermarkets would likely still be able to clock sales via deliveries contributing to a milder decline in tenant sales compared to foot traffic in Clementi Malls.

These tale of two appear to suggest that retail malls in the sub-urban, high density residential areas in Singapore are fairly resilient amidst the COVID-19 pandemic.

Despite the gloomy economic outlook, travel restrictions and weak consumer sentiment, overall the data from these two malls appear to show brighter days ahead.

Positioning to Ride the Recovery

Opportunities and Risk Post-COVID-19 Pandemic in the S-REIT Sectors

The COVID-19 crisis has brought about an unprecedented economic shock to many sectors, and yet it has also generated opportunities in others.

The tech sector has been a major beneficiary and along with that, S-REITs exposed to the Data Centre sector such as Keppel DC REIT and Mapletree Industrial Trust gained phenomenally.

But are the investment opportunities in REITs now gone? Personally, we do not think so. There are still many REITs below their pre-COVID-19 levels poise to recover strongly in the coming quarters – and now it is the best time to prepare to capture the post-COVID recovery.

Join us as we discuss the opportunities and risk in the S-REIT space sector-by-sector as we try to uncover recovery opportunities for FY2021 and beyond. Real estate sectors that we will be covering include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.

Our speaker Tam Ging Wien will be sharing his knowledge and experience including:

  • Part 1: A Survey of the REITs Landscape Around The World
  • Part 2: Key Metrics in Identifying Strong REITs
  • Part 3: Real Estate Sector Review Amidst the COVID Crisis
  • Part 4: Screening for Opportunities
  • Part 5: Q&A

Some key highlights that will be covered includes:

  • Real estate sector-by-sector review on COVID-19 impact and recovery opportunities. Sectors covered include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.
  • Opinion on which sector will continue to stay resilient and which are poised to recover quickly post-pandemic
  • The right metric to use when screening for high quality REITs
  • Case studies of REITs which are considered high quality
  • Step-by-step demo of how to screen for high quality REITs on your own

During the sharing session, various Singapore-listed REIT examples will be used.

There will also be a Q&A so that members of the investing community may engage in open dialog and discussions in order to deepen their understanding of REITs. Do prepare your writing materials for note taking.

Please note that the duration of the webinar is 7pm to 9:15pm Singapore Time (GMT +8).

The webinar will be conducted over Zoom, we recommend that you download the Zoom App for the best viewing experience.

To learn more about REITs, we recommend the article: What are REITs?

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