Landlords with SG-focused suburban portfolio expect robust recovery

Singapore’s retail sector, particularly SGX-listed REITs, is gearing up for a strong 2024 with rent projections indicating a solid 3-5% increase across the board. This is backed by stable financial metrics, according to DBS.

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DBS Group Research’s Geraldine Wong and Derek Tan highlighted the sector’s attractive price-to-book valuation averaging at 0.8x, coupled with a promising estimated yield of 7.4% for fiscal year 2024.

The projected rental reversion within the range of 3-5% for the upcoming year is anticipated to improve these property trusts against potential interest rate hikes while sustaining the rental growth seen in the preceding year.

In the second half of 2023, malls in Central Singapore observed positive rent reversions between 5-10%, while suburban malls recorded around 5% reversions during the same period, as outlined in the report.

With S-REITs boasting a record-high occupancy rate of 99% across their Singapore assets, the sector looks forward to leveraging a sustained tourism rebound, expected to surpass 2019 levels next year.

“Building on strong tenant sales, our S-REIT malls are seeing a stronger pick up in leasing momentum, rents and occupancy in the past year,” they wrote.

“Leasing momentum saw a stronger pick up amongst listed S-REITs, with reversions trending much stronger on a q-o-q basis.”

The analysts further projected continued growth in suburban retail, citing ongoing structural tailwinds such as hybrid work arrangements and evolving consumer spending habits as driving factors.

While DBS indicates a low valuation risk by year-end for S-REITs primarily invested in Singapore, it flagged a comparatively higher risk for trusts with significant overseas exposure, such as Paragon REIT and Starhill Global REIT.

Overall, the sector maintains a low average gearing of below 40%, increasing cash flows and sustaining a low-risk profile.

DBS singled out Frasers Centrepoint Trust (FCT) and Lendlease REIT (LREIT) as potential outperformers in the coming year among all S-REITs.

FCT is expected to benefit from the resilience of domestic consumption, while LREIT is set to benefit from its well-balanced portfolio encompassing both central and suburban malls in Singapore, according to the report.

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