Singapore Reit – BT

Singapore Retail Reits
Credit Suisse, March 25

UNTIL significant improvements in the credit markets, we believe operation performance will be key to S-Reits’ growth.

We like the retail sector for a number of reasons: 1) retail Reits offer another growth engine from asset enhancement initiatives (AEIs); 2) demand is expected to increase with tourism growth, while supply is not excessive; 3) retail rents and suburban occupancy have shown resilience over recessionary periods; and 4) there is room for rental growth given that prime retail rents are at 55.2 per cent discount to those in Hong Kong and retail space per capita is still one of the lowest among major economies.

Share prices have also declined significantly (-28 per cent) in the last six months, and we believe the sector deserves to trade up given the growth outlook.

We are overweight on the retail sector and CapitaMall Trust (CMT) is our top pick given its superior retail mall management franchise. Both CMT and Frasers Centrepoint Trust (FCT) have strong sponsors, with key catalysts from AEIs and acquisition pipelines. We estimate that for every $100 million of AEIs undertaken, DPU accretion is 4.1 per cent for CMT and 23.1 per cent for FCT.