Retail-linked REITs a good choice: Analysts

With improving economic indicators and rising tourist arrivals, analysts are singling out retail-linked real estate investment trusts (REITs) as good investment bets for investors.

Compared with the office sector, the retail sector has remained much more resilient, said Mumbai-based financial group IIFL in its Jan 11 report.

It has positive ratings on retail play REITs like CapitaMall Trust and CapitMall Asia, citing the bullishness on retail sales and space demand, which will be driven by strong GDP growth and tourist arrivals in the next two years.

IIFL upgraded CapitaMall Trust to “buy” on Friday after it reported a 9.24-cents distribution per unit for 2010. “We like its robust occupancy rate (99.3 per cent) and steady growth via strong reversions (6.5 per cent) in FY2010,” IIFL said. The trust’s asset enhancements initiatives in JCube and Atrium @Orchard are also expected to generate an additional $20 million in rental income in 2013.

IIFL’s Jan 11 report estima-ted rentals would grow between 2 and 5 per cent a year in 2011 to 2012, with prime rentals growing faster in the Orchard area at 3 to 5 per cent yearly, on the lack of new supply.

Starhill Global REIT, which generates two-thirds of its revenue from Ngee Ann City and Wisma Atria is likely to benefit as well from this, Kim Eng analyst Anni Kum said in a Jan 11 report.

Ms Kum reiterated a “buy” rating on Starhill Global noting that about 20 per cent of its retail leases in Singapore are expiring this year and that so far, the rates of those leases are about 30 per cent below rentals in the fourth quarter of last year. Kim Eng sees a positive rental revision in the next two years.

While rents in the prime Orchard district head north, the scenario for suburban retail rents will come under pressure as new retail spaces come on stream, Ms Kum’s report said.

The opening of Clementi Mall, JCube and Changi City Point could see rental rates going down in the suburbs. Among those likely to feel this impact is Frasers Centrepoint Trust.

“FCT, with its 100-per-cent exposure to suburban malls, is likely to be affected,” wrote OCBC analyst Ong Kian Lin in a Jan 11 report. “With only four local malls under its asset portfolio (Causeway Point, Northpoint, Anchorpoint, Yewtee Point), there is a limit to how much further it can scale, compared to CapitaMall Trust – the largest retail REIT which has 15 malls under its belt,” the report added, maintaining a “hold” rating.

Source : Today – 24 Jan 2011

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