Retail-linked REITs seen benefitting from growth in retail sales

Sustained economic growth and strong tourist arrivals in the next two years are expected to spur growth in retail sales.

This could bode well for real estate investment trusts (REITs) that own shopping malls.

Some analysts are singling out retail-linked REITs as good investment bets.

They are bullish, in particular, about those that own shopping malls in the prime Orchard Road area.

Mall owners in the Orchard Road area have a lot to look forward to.

Analysts said tourism and increasing consumer confidence will continue to spur retail sales this year. And with no new malls coming up in the area, retail rents there could rise by up to 5 per cent.

Ong Kian Lin, investment analyst at OCBC Investment Research, said: “If you take a walk along Orchard, you see that there are more shoppers traffic after the facelift. Not only are there more tourists, but there are also more locals. In fact, we think that Orchard Road may have even stolen some traffic from the Marina and Suntec areas which have quietened down quite a fair bit, especially during weekends and evenings. So all in all, our top choice would be Starhill Global which has investment properties around Orchard Road such as Wisma Atria and Ngee Ann City.”

Around 20 per cent of Starhill’s retail leases in Singapore are expected to expire this year.

And analysts said the next two years will see an increase in those rents. This is because they are still 30 per cent below rental rates in the fourth quarter of last year.

But that won’t be the case for suburban retail malls, where rents are likely come down. This is because of new supply coming on stream with the opening of Clementi Mall, JCube and Changi City Point.

Mr Ong said: “Frasers Centrepoint Trust is likely to be affected because it has 100 per cent exposure to suburban malls. If you look at its latest quarter results, some of the neighbourhood malls are already showing signs of being impacted by this. For example, Northpoint and Yew Tee Point, you see that their gross revenue for this quarter is edging down a bit.”

Still, some analysts believe investing in REITs still offer a compelling investment case.

Wong Sui Jau, general manager of Fundsupermart, said: “Generally, I think they are still alright in terms of valuations, and I also think there is a greater interest in REITs especially because now, directly investing into properties is actually becoming more and more expensive simply because of the new property curbs. REITs are generally a lot cheaper to get exposure to.”

Analysts like IIFL see positive prospects for retail play REITs like CapitaMall Trust and CapitMall Asia.

IIFL said the trust’s asset enhancements initiatives in JCube and Atrium@Orchard are also expected to generate an additional S$20 million in rental income in 2013.

To get the most from their investments, analysts said investors must choose retail REITs that have strong balance sheets and a diversified portfolio.

Source : Channel NewsAsia – 2 Feb 2011

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