BETWEEN SPH Reit and Frasers Centrepoint Trust (FCT), the former is likely to see a greater possible impact from Metro Holdings' potential exit of its department store business, DBS Group Research said on Tuesday.
Metro has two department stores with a few years left on the lease at SPH Reit's Paragon and FCT's Causeway Point, where it stands as an anchor tenant.
DBS said the exposure appears to be material for Paragon, a key asset for SPH Reit. Metro's department store occupies a "cold corner" within the mall where there is less traffic. Hence having an anchor tenant to continue operating at the space is necessary to "pull" traffic.
For FCT, the research team sees income risk being further minimised with the contribution from the PGIM portfolio. It also believes it will be easy to find a new anchor tenant should Metro exit as the department store occupies a relatively desirable part of the mall - levels one to three with good frontage.
On the sector as a whole, DBS noted there are still a handful of department store tenants battling the same pandemic pressure, with a good number owned by S-Reit (Singapore-listed real estate investment trust) landlords or Reit sponsors.
The retail format has been struggling for years, having failed to establish a meaningful omnichannel preference. Moreover, the lack of ability to hold atrium sales has put further pressure on the revenues of these department stores, the research team said.
DBS has a "hold" call on SPH Reit with a target price of S$0.80 and a "buy" call on FCT with a target price of S$3.
Units of SPH Reit closed flat at S$0.83 on Tuesday, while FCT units closed 1.16 per cent or S$0.03 higher at S$2.61.