2 Best Singapore Retail REITs That Benefit From Reopening

Northpoint City shopping REIT

Tim Phillips

April 5, 2022

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Singapore’s real estate investment trust (REIT), as well as dividend, investors must have been rejoicing when Prime Minister Lee Hsien Loong gave his most recent update on the city state’s Covid-19 reopening strategy.

That’s because Singapore’s PM announced a further loosening of restrictions, such as dining in groups of up to 10, allowing alcohol to be served after 10:30pm, and permitting up to 75% of employees to return to offices.

All this has given succour to investors who want to see their REIT dividends return to the pre-pandemic days. Clearly, some of the immediate beneficiaries of these easing measures will be retail and office REITs.

That’s particularly true of retail REITs, which were among the first to suffer in the Covid-19 pandemic lockdown in 2020 as people stayed at home, ordered in and generally avoided crowded places.

So, now that we seem to be heading back to a state of “normalcy”, here are two big retail REITs in Singapore that are in prime positions to benefit.

1. Mapletree Commercial Trust

One of the best-performing Singapore REITs over the past decade, VivoCity and Mapletree Business City owner Mapletree Commercial Trust (SGX: N2IU) has rewarded long-term shareholders.

However, over the past three years, Mapletree Commercial Trust shares have only delivered total returns of 15.3%.

One of the big reasons for that has been the Covid-19 pandemic, which saw its distribution per unit (DPU) fall around 12.5% between FY 2018/19 and FY 2019/20.

More recently, though, the REIT’s earnings an outlook have started to improve. This is no more evident than in VivoCity’s shooper traffic and tenant sales (see below).

The shopping centre – which accounts for around one-third of Mapletree Commercial Trust’s net profit income – is a barometer of how the Singapore consumer is feeling.

VivoCity tenant shopping traffic

Source: Mapletree Commercial Trust Q3 & YTD FY21/22 business update presentation

Dividend investors should be cognisant that the Singapore-focused REIT’s blockbuster merger with Mapletree North Asia Commercial Trust (SGX: RW0U) is still ongoing and is only expected to be completed in the middle of this year.

That pending merger may also be one reason why shares have lagged this year, down 1.6% in total return terms.

Yet even post-merger, the combined REIT’s Singapore portfolio will make up 53% of pro forma net profit income.

Additionally, given Mapletree REITs’ track record of execution, the huge size of the unified REIT should be a net positive longer term.

With Singapore continuing to reopen and Mapletree Commercial Trust having exposure to both retail and office properties, the REIT should continue to be a top retail REIT for investors.

2. Frasers Centrepoint Trust

As I’ve written about recently, Frasers Centrepoint Trust (SGX: J69U) is one of the most rock-solid retail REITs in Singapore.

The main reason for this is that Frasers Centrepoint Trust mainly caters to local residents via its suburban malls.

And it’s here where consumer demand has held up much better versus city-centre malls given the former plays a more critical role in day-to-day shopping needs.

As a more pure-play retail REIT, as it’s focused mainly on Singapore and has nearly all its properties in the retail space, Frasers Centrepoint Trust looks to be one of the key beneficiaries from the recent announcement of the reopening measures.

That doesn’t mean the REIT isn’t continuing to refresh its current properties and their offerings. Recent store openings include popular Japanese chain Don Don Donki at Waterway Point and a Huggs Coffee at Changi City Point.

Finally, Frasers Centrepoint Trust’s portfolio is extremely well-diversified in terms of tenant concentration.

In fact, the top tenant (in terms of gross rental income) is NTUC FairPrice, which has only a 3.3% of total GRI as of 31 December 2021.

Singapore reopening to the world…and REIT investors

The further easing measures announced by the Singapore government will see many more people travelling overseas as other countries around the world also open up.

For local dividend investors, this marks a clear path to a more predictable 2022 for Singapore retail REITs.

Overall, it’s been a tough few years for retail REIT investors, who had been accustomed to a strong local economy in the decade prior to Covid-19.

Now that the local retail market seems to have turned a corner, Mapletree Commercial Trust and Frasers Centrepoint Trust look well positioned to reward dividend investors as shopping trends start to normalise.

 

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.