REIT unit prices set to increase

Unit prices of Singapore Real-Estate Investment Trusts (REITs) are expected to increase as the retail sector gains traction from increased consumer spending and help boost rentals for shopping malls.

Economic indicators, namely population growth, rising tourist arrivals and rising household income in Singapore have boosted retail sales as the Singapore economy expanded at 14.5 per cent last year.

Retail REITs own and operate retail properties and earn revenue by leasing them to retail tenants.

Retail rents in Singapore stopped declining since last year and private retail occupancy has stabilised at the 94 per cent level since the fourth quarter of last year, recovering from a low of 91 per cent in the fourth quarter of 2009.

Credit Suisse recently upgraded ratings for units of retail REITS including CapitaMall Trust and Frasers Centrepoint Trust to outperform at S$2.22 (from S$2.10) and S$1.90 (from S$1.68) on the back of rising distribution per unit (DPU).

Analysts expect that the retail REIT sector will be driven by acquisitions for this year, with the momentum already picking up.

Earlier this month, CapitaMall Trust acquired Iluma at Bugis from Jack Investments for S$295 million and Frasers Trust has announced plans to target Bedok Point.

Credit Suisse believes that CapitaMall Trust might acquire ION Orchard on expectations of a lowering interest cost and a stabilisation of its rentals since its opening in October 2009.

Government land sales tenders (GLS), an indicator of mall valuations, have also been on the rise. Retails rents on average, are estimated to grow between 2-5 per cent per annum, according to Credit Suisse.

Rental growth for suburban malls is expected to be stronger than in the central areas due to tenant bargaining power from an oversupply of retail space in the latter segment.

Mr Alvin Tan, associate analyst at Moody’s Investors Service, said: “If you look at economic growth last year, prime space levelled off but suburban areas were very resilient after the crisis. Rentals for suburbans are the most stable amongst all segments.”

Source : Today – 22 Mar 2011

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