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How Is StarHill Global Real Estate Investment Trust Navigating The Disruptive Forces of eCommerce?

Credit: Calvin Teo

There are many real estate investment trusts in Singapore that deal predominantly with the retail sector.

Some, like Frasers Centrepoint Trust (SGX: J69U), target suburban malls in Singapore. Others, such as StarHill Global Real Estate Investment Trust (SGX: P40U), have a focus on high-end malls in the Garden City’s prime shopping districts.

Then, there are also those which invest mainly in the retail scene of foreign shores, such as CapitaLand Retail China Trust (SGX: AU8U), which owns malls in China.

But whatever is their preferred investment domains within the retail sector, the Singapore-listed retail REITs all share one trend that could potentially disrupt their businesses – the rise of eCommerce.

Online shopping – otherwise known as eCommerce – is still tiny in Southeast Asia today. For instance, even in a country such as Singapore where the internet penetration rate is high, online shopping took up only 1% of total retail sales in 2014, according to a recent report from market researcher Frost & Sullivan.

But, the market is growing – fast. Frost & Sullivan expects eCommerce in Singapore to compound at 13% annually from 2014 to reach around US$1.3 billion in value by 2017.

The topic of the potential disruption that eCommerce can wreak on traditional bricks-and-mortar retail activity was broached in a roundtable discussion on Wednesday that was organised by Macquarie Securities Singapore. The participants included the executive director of Macquarie and the chief executives of the managers of several REITs. They are:

  • Soong Tuck Yin from Macquarie;
  • Koh Wee Lih from AIMS AMP Capital Industrial REIT (SGX: O5RU);
  • Ronald Tay from Ascott Residence Trust (SGX: A68U);
  • Ng Hsueh Ling from Keppel REIT (SGX: K71U); and
  • Ho Sing from StarHill Global REIT

I was invited to the discussion as part of the media contingent and heard Ho’s views on eCommerce and how StarHill Global REIT is handling the situation.

Ho said StarHill Global REIT does not have to do too much about eCommerce. He thinks that the REIT’s malls are pretty well insulated from any possible threats arising from eCommerce because its properties in Singapore have strong locations and an attractive tenant mix. They also cater to a “differentiated segment of retail.”

For context, StarHill Global REIT’s mainstays are Ngee Ann City and Wisma Atria, two retail malls that are seated in the heart of the Orchard Road shopping belt.

Moreover, Ho also mentioned that eCommerce has been a boon for the Singapore retail scene – it has educated consumers here about new brands from overseas and has thus given mall owners more opportunities to improve the tenant mix and shopping experience of their malls.

What’s also interesting is Ho’s view that the “whole online phenomenon is overrated.” He said that online retail channels are used mainly by shoppers to purchase only small-and-cheap every-day items.

StarHill Global REIT has managed to grow its distributions per unit (DPU) over the past few years, from S$0.0439 in the fiscal year ended 31 December 2012 to S$0.0518 in the fiscal year ended 30 June 2016 (the REIT had recently changed its fiscal year). That’s a sign of the REIT’s resilience to any corrosive effects from online retail.

The REIT has also managed to retain footfall in some of its malls. For instance, Wisma Atria’s shopper traffic in the second-quarter of 2012 and second-quarter of 2016 had both come in at around 6.5 million.

It appears for now that StarHill Global REIT has not been too troubled by developments in eCommerce. It’d be interesting to see how the REIT does in the future.

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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 writer Chong Ser Jing doesn't own shares in any companies mentioned.