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Current outlook of S-REITs

by Level13 on May 26, 2009

Photo by René Ehrhardt

Photo by René Ehrhardt

Real Estate Investment Trusts (REITs) in Singapore are struggling for the first time since CapitaMall Trust, the first S-REIT, was listed in July 2002. Before the US sub-prime crisis took its toll on the economy and property market in Singapore.

Like their Asian peers, S-REITs have taken a beating since mid 2008. S-REIT prices have fallen by an average of 61% between end 2007 and 2008. Their total market capitalisation has plunged by 42%. With a total debt of over S$4.9 billion maturing in 2009 and more than $3.2 billion in 2010, refinancing has become the most imminent challenge, exacerbated by increasing cost of financing under the tighter credit conditions. Deleveraging is also among the top priorities of S-REITs, leading to CapitaMall Trust (CMT)’s major rights issue in March 2009. On top of these problems, S-REITs are threatened by falling rental income in all sectors and asset devaluation in their portfolios.

The retail S-REITs are expected to be the least impacted by falling rents among other S-REITs in this downturn. During previous downturns, the retail sector was the most resilient with rents declining the least. S-REITs with more suburban malls in their portfolios would face the least drop in rental income as their resident catchment would still need to eat and drink and purchase basic goods and services. Average rents in suburban areas dropped only marginally by 1.6% in the first quarter of 2009 from the peak in the third quarter of 2008 while average rents fell more by 6.9% in Orchard/Scotts Road and 3.8% in Other City Areas during the same period. Suburban malls also have an advantage over malls in the central areas in terms of competition level as among the 2.9 million sq ft of new supply in 2009, only 9% will be in the suburban areas. With the opening of Tampines 1 Mall in early April 2009, there will be no other major new mall in the suburban areas for the rest of the year. Read more…


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