Stronger year ahead seen for retail S-REITs on Singapore tourism rebound

Recovery is particularly robust for landlords with a Singapore-focused, suburban portfolio.

Retail SGX-listed REITs are poised to register strong results in 2024 with rent reversions projected to hover around 3-5% across the sector while financial metrics will remain stable, according to a recent note by DBS.

DBS Group Research analysts Geraldine Wong and Derek Tan said the sector still has an attractive price-to-book valuation at 0.8x on average, as well as a promising yield estimated at 7.4% for the fiscal year 2024. 

The analysts said a rental reversion of 3-5% next year should give the property trusts with enough buffer for further interest rate hikes, and sustain the rental growth landlords booked this year. In the second half of 2023, positive rent reversions of 5-10% were seen in malls located in Central Singapore, while reversions for suburban malls clocked in at around 5% during the same period according to the report.

Further supporting that growth is a record high occupancy of 99% across all assets of S-REITs in Singapore. The sector is also set to benefit from a sustained tourism recovery with tourist receipt in Singapore expected to beat 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 also expect multi-year structural tailwinds, like hybrid work set-ups and the changing consumer spending behaviour, will further support growth in suburban retail. 

Meanwhile, the valuation risk for the sector this year end is likely to remain “low and muted” especially for S-REITs with portfolios anchored in the Lion City according to DBS. However, it painted an “elevated risk in terms of valuation” for trusts with higher overseas exposure, like Paragon REIT and Starhill Global REIT.

Overall, the sector continues to enjoy low average gearing of below 40%, improving cash flows and low risk profile.

DBS said Frasers Centrepoint Trust (FCT) and Lendlease REIT (LREIT) are likely to outperform next year among all S-REITs.

FCT is poised to benefit from domestic consumption’s resiliency, while LREIT continues to reap the rewards of maintaining a good mix of malls in Singapore’s central and suburban areas, according to the report.