BT: Outlook for S-Reit market remains positive despite sub-prime fears

Business Times - 20 Dec 2007

Outlook for S-Reit market remains positive despite sub-prime fears

Increased volatility in Reit prices will attract more investors in 2008

By CHRISTOPHER TANG

SINCE consumer confidence is the most fickle of all economic factors, the retail trade is a good barometer for the health of an economy.

For 2007, this barometer has been in the 'extremely healthy' range. Sales have been up - to the tune of 14.4 per cent as of June 2007 - and so has rental of retail space.

We expect retail to continue nicely right through 2008. For one thing, retail malls - led by the professionally run retail Reits - are investing in physical enhancements to improve and maintain competitiveness.

The enhancements inject a new vibrancy, creating a better experience for the shoppers and improved business for the tenants. For example, thanks to Anchorpoint's $12 million repositioning as a village-mall, shopper traffic and tenant business have improved substantially.

The malls are not the only innovators. Retailers, too, are coming up with new concepts. For instance, the Tung Lok Group created their first kitchen-concept eatery in the new Anchorpoint with Zhou's Kitchen. Similarly, Charles & Keith, G2000, FOS, Club Marc, City Chain, Capitol Optical, Pedro and Giordano have also created unique outlet concepts.

With the advantages of Reits, there will be increasing securitisation of the Singapore retail scene through 2008, with more properties being injected into a Reit structure.

Singapore's Reit scene is only about five years old but the market has grown. By September 2007, there were 18 listed Reits with a total market capitalisation of $29.5 billion, which made Singapore the third-largest Reit market in the Asia-Pacific and the seventh largest worldwide.

We expect more Reits to be launched in the medium term, with at least one or two being retail Reits or Reits with retail components.

The two retail Reits listed at present - Frasers Centrepoint Trust and CapitaMall Trust - are also growing aggressively in the region, particularly in Malaysia and China.

Institutional and retail investor appetite for Singapore Reits continue to be strong.

Reit prices took a bit of a correction in the second half of 2007 when prices fell by about 25 per cent as a result of the US sub-prime fears. I believe the increased volatility will attract more investors to Reits in 2008. Reits are a defensive investment instrument - providing a consistent underlying yield and yet providing exposure to the on-going recovery and long-term growth of the Asian economies and property markets.

Investors will gravitate towards Reits with quality assets. In this respect, suburban malls are very resilient. After all, Singaporeans will still need to shop for their basic necessities. Suburban malls in Singapore managed to ride through the Sars epidemic as people cut back on luxury goods and focused on daily essentials. There exists a very inelastic demand at the suburban mall level.

Investors will also look to Reits with proven track records. Typically, institutional investors have found Reits associated with strong sponsors attractive because of their ability to leverage on the synergies with the sponsor for growth opportunities.

Ultimately, the outlook on Singapore's overall Reit market remains very positive, with market experts expecting it to double by 2010. Retail Reits should continue to remain stable and sensible investment options, even in the current sub-prime environment.

The writer is CEO, Frasers Centrepoint Trust