SPH REIT: VTLs won’t boost Paragon mall much near term

Four of the properties in SPH REIT -- Paragon mall, Clementi Mall, The Rail Mall and Figtree Grove Shopping Centre. Image credit: SPH REITFour of the properties in SPH REIT -- Paragon mall, Clementi Mall, The Rail Mall and Figtree Grove Shopping Centre. Image credit: SPH REIT

SPH REIT dampened expectations that Singapore’s vaccinated travel lanes (VTLs) — which allow vaccinated visitors from select countries into the city-state without long quarantines — would boost Paragon mall out of its Covid-related doldrums.

Paragon is an upscale, luxury-brand-focused retail mall and medical suite/office property located in Singapore’s tony Orchard Road shopping belt. The Orchard Road area has been hard-hit by the evaporation of tourism amid the Covid-19 pandemic, which spurred lockdowns and travel restrictions.

On Friday, in response to shareholder questions ahead of its annual general meeting (AGM) next week, SPH REIT said the VTLs weren’t a panacea for Paragon.

The REIT noted VTLs were launched in September with a daily quota of 2,500 people from 10 VTL countries, with the quota now boosted to 6,000 — significantly below the pre-Covid levels of around 1.6 million monthly tourists, based on Singapore tourism board data.

“At this initial stage of the VTL scheme, footfall contribution from tourists and consequently tenant sales is not expected to have a significant
impact at Paragon in the near term,” SPH REIT said.

The REIT noted Singapore is currently discussing opening its borders to more countries, but added the recovery of leisure travel is expected to be gradual.

“Although Paragon’s tenant sales has been impacted by decline in tourist arrivals, the domestic market consumption driven by the phased lifting of safe distancing measures has partially cushioned the decline in tenant sales,” the REIT added.

The mall posted full fiscal year gross revenue of S$159.87 million, up 9.1 percent on-year, with net property income for the 12 months ended 31 August at S$119.39 million, up 5.9 percent. Full-year footfall at Paragon fell 17 percent on-year, but tenant sales were stable, the REIT said in October.

However, for the 12 months ended 31 August 2019, before the spread of Covid-19, Paragon reported gross revenue of S$170.40 million , and net property income of S$136.02 million.

Paragon’s fair value was at S$2.64 billion as of end-August, largely unchanged on-year, SPH REIT reported with its full-year results.

In October, SPH REIT reported full fiscal year net property income rose 11.4 percent on-year to S$202.63 million, while gross revenue increased 14.8 percent on-year to S$277.18 million. Performance for the full year was bolstered by the full-year contribution from the Westfield Marion property in South Australia, which was acquired the previous year, SPH REIT said.

At end-August, SPH REIT had a high occupancy of 98.8 percent on a proactive leasing strategy, but soft retail leading sentiment impacted renewals and new leases, causing a negative portfolio rental reversion of 8.4 percent, the REIT said in its earnings release.

Footfall for the fiscal year fell 27 percent for Singapore assets amid a decline in tourist arrivals and on work-from-home arrangements, the REIT said. But it added tenant sales have stabilised, edging up 1 percent on-year.

SPH REIT has a portfolio of five assets across Singapore and Australia. In Singapore, the REIT owns the Paragon mall, The Clementi Mall and The Rail Mall. In Australia, the REIT owns a 50 percent interest in Westfield Marion Shopping Centre in Adelaide, South Australia, and an 85 percent stake in Figtree Grove Shopping Centre in Wollongong, New South Wales.