The Best Retail REITs in Singapore

In Singapore, there are 31 real estate investment trusts (REIT) and property trusts. Of these, eight are REITs that focus on retail businesses. Said another way, these are REITs that own and operate retail properties such as shopping malls.

To pick the best retail REIT, we might want to start with key factors that influence the retail sector. Here are three of them which I have picked up from my own study of REITs.

1. The resilience of sub-urban malls

2015-02-05 Capitamall Slide

Source: CapitaMall Trust’s Presentation; citing data from Jone Lang LaSalle and Bloomberg.

A recent presentation was done by mall owner CapitaMall Trust (SGX: C38U) covering the historical S$ per square foot rental rate for suburban malls and retail malls located on Orchard Road.

The two decades under study included tumultuous periods for Singapore such as the Asian Financial Crisis (1997), the Dot Com crash (2000) and the Global Financial Crisis (2008-2009).

As we can see, the graph above points towards the resilience of the suburban retail rental rate throughout the last two decades. The resilience of rental rates in a REIT’s property portfolio is important to note because a REIT’s revenue can hold up if rental rates do so as well.

It follows that if suburban malls demonstrate strong earnings power to attract customers and maintain high tenant occupancy, it could be worth a closer look. In this case, a REIT like Frasers Centrepoint Trust (SGX: J69U), an owner of suburban malls in Singapore, may fit the bill. You can read more about the REIT here.

2. Singapore Tourist Arrivals

2015-02 CapitaMall Slide 2

Source: CapitaMall Trust’s Presentation

On a subsequent slide in CapitaMall Trust’s aforementioned presentation was a chart which pointed to how Singapore’s retail sector could to benefit from a long term gain in tourist arrivals.

With this year’s celebration of Singapore’s 50th birthday and the upcoming South-East Asian games, tourist arrivals for 2015 could be favorable for retailers. 

For this, REITs like Starhill Global Real Estate Invmt Trust (SGX: P40U) may be one to keep an eye on. Starhill Global owns marquee malls on the tourist friendly Orchard Road like Ngee Ann City and Wisma Astria. You can catch up with the REIT here.

3. Online retailing is a threat 

It’s not going to be a walk in the park for retail REITs in Singapore. Online shopping has been on the rise and shopping malls are facing a threat of lower shopper traffic as a result. A recent report from AsiaOne highlighted three noteworthy statistics on online retailing:

  1. Research agency Frost and Sullivan said that Singapore was South-East Asia’s  largest e-commerce market for 2013, clocking in sales of $2.1 billion.
  2. Another study by Merger Alpha predicted e-commerce revenues of $4.4 billion in 2015.
  3. Meanwhile, payments processor PayPal anticipates mobile e-commerce to generate S$3.1 billion by 2015 as well.

These are significant figures, and my colleague Ser Jing has also pointed to the decreasing  trend of shopper traffic as an ongoing concern for retail REITs in the future. 

2015-02 Mapletree Commercial Trust

Source: Mapletree Commercial Trust’s presentation

All is not lost though, as shopping malls like Vivocity – which is owned by Mapletree Commercial Trust (SGX: N2IU) – reported growth in shopper traffic for its current financial year. With Vivocity making up close to 65% of Mapletree Commercial Trust’s revenue, the REIT may be one to study further. Learn more about the REIT here and here.

Foolish summary 

The best REIT in Singapore may be judged by the earnings power of the properties that it owns, the trends which favor it, and the price that we pay for its units.

Of course, there can always be more factors to consider – like the ability of its management to fund future purchases or enhancements – and each REIT will offer its own version of pros and cons. But either way, if we can find the best combination, then we may have found our next investment candidate.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.