Retail REITs under threat from sliding Hong Kong sales

It accounts for almost a quarter of their revenue.

Mall landlords in Singapore are expected to remain fairly resilient this year, but weak sales in Hong Kong might prove to be the Achilles’ heel of retail REITs.

Fitch said that retail SREITs earned 23% of their 2015 revenue in Hong Kong, where retail sales fell 6.5% year-on-year in January.

“Retail sales in Hong Kong - where the retail SREITs earned 23% of their 2015 revenue - are under the most pressure from slowing economic activity,” Fitch noted.

In Singapore, meanwhile, retail sector vacancy rates to rise to 10% in 2016 from 8% at the end of 2015, driven by weak domestic demand and an expected 4% increase in retail space.

However, the impact on retail SREIT earnings will be limited to the 20% of the sector's leases coming up for renewal.

“The nine Singapore-listed retail-sector real estate investment trusts are likely to remain resilient in 2016, despite the difficult macroeconomic environment. This is because of the sector's low leverage, robust interest coverage plus manageable debt and lease contract maturities,” Fitch said.