April 20, 2017 9:14 pm JST

Singapore shopping mall REITs maintain rents in dismal retail market

SINGAPORE (Nikkei Markets) -- Singapore's retail sector may be in the doldrums but real estate investment trusts have escaped the impact so far, continuing to report strong occupancy levels at their shopping malls and steady to slightly higher rental income.

That's mostly due to adroit management and the location of their malls, many of which are in office areas or near populous housing estates, say observers, who add that REITs are likely to continue to outperform the overall market.

REITs, which are usually single owners of the malls, are able to control the tenant mix and introduce new retail or activity-based concepts to attract crowds and get visitors to stay longer in their properties, said Desmond Sim, head of research for Singapore and Southeast Asia at CBRE, a large property services firm.

The recent performance of two major REITs stands in sharp contrast to the overall picture of falling rents and rising vacancies in Singapore as retail sales declined for the third straight year in 2016.

CapitaLand Mall Trust, the island's biggest retail landlord whose largest shareholder is CapitaLand Ltd., announced an unchanged first-quarter distribution per unit of 2.73 Singapore cents (1.95 cents) a share on Thursday although traffic and sales at its malls dipped slightly.

Gross income, which consists primarily of rent from its properties, fell 4.3% from a year ago to S$172.0 million, due to the closure of one of its malls for redevelopment.

On a comparable mall basis, which excludes those that have been shut or divested, gross revenue edged 0.1% higher, while occupancy stood at 97.7% as at end-March.

CMT said shopper traffic during the quarter fell 0.5% year-on-year, while tenant sales per square foot per month declined by 0.7%.

Smaller landlord SPH REIT, which is about 70% owned by publisher Singapore Press Holdings, earlier this month reported a 5.2% increase in net property income and 100% occupancy at its two malls for its fiscal second quarter ended February.

According to estimates from the Urban Redevelopment Authority, retail rents in Singapore fell 8.3% last year after dropping 4.1% in 2015. The island-wide vacancy rate for retail space rose to 7.5% at the end of 2016, translating to average occupancy of 92.5%. The vacancy rate stood at 7.2% at end-2015.

While URA figures for the first quarter of 2017 will not be available till later this month, an index compiled by the Department of Statistics showed February retail sales fell 4.9% from a year ago, following a 2.4% increase in January. Both figures exclude vehicle sales, which are determined by government quotas aimed at controlling the car population.

Retailers in Singapore have been hit by the strong local dollar as well as the growing popularity of internet shopping, which has eroded sales at brick and mortar outlets. The city-state's tougher stance on permits for foreign labor has also contributed to the sector's woes, as it has made it difficult for successful retailers to expand, said analysts.

However, the problems have not affected the sector evenly, and there continues to be strong demand for space at well-managed malls near housing estates and offices.

"If you look at CMT, most of its malls are suburban malls supported by large population catchments. They also have the expertise in managing the malls and economies of scale," said CBRE's Sim.

He added that initiatives such as the building of water parks and playgrounds for children as well as attractions such as the Alive Museum at Suntec City mall near the central business district, where visitors can interact with characters in a 3D painting, have helped draw the crowds.

Suntec City is managed by Suntec Real Estate Investment Trust, which is also part owner of the properties in the Marina Bay Financial Centre.

If you have a number of owners for the various units in the mall, "you could have a fashion outlet next door to a Korean barbeque, whose smell will affect the nearby businesses," as individual landlords seek out the highest paying tenant without considering the overall aesthetics, he said.

SPH REIT attributed its strong performance to its ability to attract new players to Singapore and efforts to help tenants refresh concepts and the ambience of their stores.

An SPH REIT spokeswoman cited the opening of the first Singapore outlet of Bangkok's popular Greyhound Cafe at the trust's flagship Paragon mall in December, as well as a new restaurant bar and specialty café with all-day lunch and dinner menus as examples.

While several malls continue to perform well, CBRE remains bearish about the retail sector overall and predicts a rise in vacancies in most areas of Singapore in the next two quarters.

Landlords may, however, get a lift from the shrinking supply of new retail space in Singapore, which CBRE estimates at 1.22 million square feet this year, well below the average of 1.67 million square feet per annum over the past five years.

--Kevin Lim

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

Asia300

CapitaLand Ltd.

Singapore

Market(Ticker): SES(C31)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 10,679.20M
Shares: 4,274.38M

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