Indonesian shoppers a boon to S’pore REITs

When it comes to shopping, the Indonesians are slated to be the next big spenders. That’s according to analysts, who say the country’s large population and robust economic growth will contribute to higher disposable incomes.

Analysts also said that this trend would mean Singapore-listed retail real estate investment trusts (REITs), which have large exposure to emerging markets like Indonesia and China, look set to benefit.

For instance, Lippo-Mapletree Indonesia Retail Trust achieved sterling financial results for the first quarter, which ended on March 31.

The trust, which has eight shopping malls across Indonesia, recorded a 10-per-cent rise in net profit on-year to S$22 million.

Its distribution per unit, or DPU, for March 2011 is 8.7 per cent, while its 12-month yield stands at 8.02 per cent. This is higher than the 12-month yields of 5 to 6 per cent for other Singapore-listed retail REITs.

Indonesia’s gross domestic product is expected to grow by 6.6 per cent this year and it is home to more than 230 million people.

“Lippo-Mapletree Indonesia Retail Trust malls in Indonesia are hitting more than 200 million shopper traffic on an annual basis for the first time. So all this points to the rising trend of the mall culture in Asia,” said Mr Ong Kian Lin, Investment Associate at OCBC Research.

Despite the huge potential in retail spending, analysts say there is intense competition among shopping malls in emerging markets.

“Five to seven years ago, before the birth of a lot of these REITS, there were malls in good locations,” said Mr Terence Wong, co-head of research at DMG & Partners Research.

“There was a standardised way of doing things. The trusts bought the mall, they carried out asset enhancement initiatives and they spruced it up to increase the traffic. And, after that, they would be able to command much better rentals,” he added.

“So, five to seven years ago these malls were very cheap. But now, because there are so many REITs fighting it out, I think there are a lot of choice properties that are already gone,” said Mr Wong.

And that’s why some REITs are looking at up-and-coming cities for their next acquisition. Singapore-listed CapitaRetail China Trust recently bought a mall in Wuhan, its first in a tier-2 Chinese city.

CapitaRetail China Trust bought the New Minzhong Leyuan Mall at the busy Zhongshan Ave from CapitaLand’s serviced residence arm Ascott Group. The trust bought the mall for S$76 million and it now has nine malls across China. Consumer spending in the mall’s vicinity is projected to reach 35.9 billion yuan (S$6.9 billion) by 2015.

“As a mall operator, you should always keep pace with the times, try to do asset enhancement when the time is right to keep your mall relevant,” said Mr Ong.

REITs rely heavily on debt to finance their acquisitions.

With interest rates across Asia expected to move higher, analysts said REITS should start looking at hedging their risks against rising interest costs. “But the bulk of them have done so already,” said Mr Ong.

Source : Today – 18 May 2011

Join The Discussion

Compare listings