Two retail REITs report higher distributable income

Two key retail REITs in Singapore have reported higher distributable income to unitholders, on the back of steady tenant sales and rental income.

Frasers Centrepoint Trust said its fourth-quarter distributable income was up 0.9 per cent to S$25.7 million, on the back of an average rental reversion of 7.1 per cent for the quarter. Meanwhile, CapitaLand Mall Trust said its third-quarter distributable income increased by 10.2 per cent to S$103.2 million. It achieved rental reversions of an average 4.1 per cent for the nine months ended Sep 30.

The numbers come amid signs of a slowing business outlook across the sector, which analysts have said will curb the ability of mall operators to raise rents. The twin challenges of weaker consumer sentiment and higher labour costs continue to put pressure on retailers, and that is having some impact on shopping mall operators.

Singapore’s largest REIT, CapitaLand Mall Trust, reported a 96.8 per cent occupancy rate for its mall portfolio as of Sep 30, down two percentage points from the start of the year. Its smaller rival, Frasers Centrepoint Trust, also saw occupancy levels trend down to 96 per cent over the same period.

“Today’s results for both retail REITs were expectedly weak, but there was a bit of a surprise in the occupancy – we weren’t expecting such a quick uptick in vacancies,” said Mr Derek Tan, vice president of DBS Group Research at DBS Bank. “Based on what we understand, I believe this will be a new normal going forward. (As for) reversions, the growth has been declining, so now on average, we are looking at about 4-6 per cent, before, it was north of 6 per cent.”

CapitaLand Mall Trust grew its fiscal third-quarter distribution per unit (DPU) by 9.6 per cent year-on-year to 2.98 cents. Meanwhile, Frasers Centrepoint Trust – reporting for its fiscal fourth quarter – said DPU was up 2.7 per cent year-on-year to 2.86 cents. For the full-year, Frasers Centrepoint Trust’s DPU was 11.61 cents, up 3.8 per cent from a year ago.

“The general industry is facing some external externalities, such as manpower shortage, and also some shifting consumer trends,” said CEO of Frasers Centrepoint Asset Management, Mr Chew Tuan Chiong. “But the retailers will be able to work through those, so some of the occupancy fluctuations you see are most likely short-term, as retailers re-position, and we ourselves – the mall operators – will also be looking to re-position the malls for the future.”

Suburban malls tend to be more resilient in the face of weaker consumer sentiment, but with the digitalisation of everything – from shopping to entertainment – some mall operators said tenants like smaller fashion retailers and DVD shops are feeling the pinch.

According to DBS, Singapore’s retail REITs offer average yields of 5.5 to 6 per cent. Shares of CapitaLand Mall Trust and Frasers Centrepoint Trust ended about 1 per cent higher on Thursday (Oct 22).

Source : Channel NewsAsia – 22 Oct 2015

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