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Maybank Kim Eng initiated coverage of Singapore’s retail real estate investment trusts (REITs) with a “negative” call, reported Business Times.
This comes as the sector continued to face structural challenges, peak new supply and rising rates despite a stronger economy and a cyclical rebound in tourism.
The brokerage gave a “buy” recommendation only to Frasers Centrepoint Trust (FCT), which is its top pick.
It gave “hold” calls to SPH Reit and CapitaLand Mall Trust, as well as “sell” ratings to Starhill Global Reit and Mapletree Commercial Trust.
In its recent report, Maybank Kim Eng noted that while optimism on retail REITs has been on the uptrend, malls and retailers still feel the heat coming from e-commerce competition as well as sales leakages as Singaporeans spend more overseas or via online channels.
These structural challenges appear to be daunting with online penetration potentially rising from 4.6 percent to between 10 and 20 percent of retail sales.
With long-term organic growth lacking visibility, sales per square metre of retail space dropped six percent over three years, said Maybank Kim Eng.
Despite these, the brokerage considered FCT, whose three malls account for 80 percent of its assets under management, as more resilient.
It flagged a weaker outlook for suburban malls, while forecasting a recovery in prime Orchard Road rents in 2018 due to tight supply.
Maybank Kim Eng expects a 14.4 percent total return upside for FCT compared to an 11 percent downside for other retail REITs.
This article was edited by Keshia Faculin.
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