REITs has always been a hot topic for retail investors in Singapore. Once in a while, I write a little bit on REITs because that’s my interest outside of index investing.

I have repeated this so many times (naggy, I know) but I will do it again. Thinking of investing in REITs in Singapore? Pick up this book called Building Wealth Through REITs by Bobby Jayaraman. As far as I know, this is the best and only book if you want information on REITs for Singapore context. Just like what the book cover highlighted, the CEO interviews were a real gem.

Building Wealth Through REITs by Bobby Jayaraman

You don’t even have to buy it, just borrow it from own national library. In fact, Google for “Building Wealth Through REITs by Bobby Jayaraman National Library” and you should see it available in OverDrive. Read the sample online for free!

Random Thoughts On Retails REITs

This post is going to be simply a collection of random thoughts in my head on retail REITs. I had originally drafted it and scheduled it to be posted at a later date. Lately, this headline from Bloomberg caught my attention –

Empty Stores Multiply as Singapore No Longer Shoppers’ Paradise

  • Singapore island-wide mall vacancies at a seven-year high
  • Rents pressured as 4 million square feet to be added by 2018

.. and I thought it would be a good idea to bring forward this post.

There is hardly anything technical that I’ll be sharing (I’m not good at that haha plus you can easily find those stuff online) but you might just have some new things to think about after this.

One can simply run the numbers and and easily filter out the “best” REITs according to your criteria. However, being “book smart” isn’t enough sometimes. If not, everyone would be making money from REITs already. I feel that retail REITs in Singapore are totally different beasts from those overseas, and this is due to many different factors as a result of the place we call home.

The Basics

Retail REITs depends on income, yes? And income is pretty much an aggregate of the factors below.

  • Maximize occupancy – higher rental income
  • Positive rental reversion – higher rental income
  • Asset enhancement initiatives (AEI)
    – Increase rentable area – higher rental income
    – Improve facilities, design, tenant mix, etc – higher footfall / tenant sales
  • Lower cost of borrowing
  • Lower operating expenses e.g. via economies of scale etc
  • Barriers to entry – protecting footfall
  • Mall design
  • Accessibility

Before we go further, it is important to understand that, of course, not all malls are are treated as equals. Within retail REITs, their portfolio of malls can be extremely different and therefore, show very diverse characteristics. For each item I briefly touch on, think about the malls that would be more affected than others.

Accessibility To Major Transport Links

Singapore is a tiny country with a well-developed transport system. A successful mall, more often than not, is situated right beside an MRT station or a bus interchange. Who doesn’t want higher footfall?

Say for example, Old Chang Kee wants to open a new store at a shopping mall located beside a MRT station. While the rental could be hypothetically 5 times higher than a neighbourhood location that is 500 metres away, the footfall could be 10 times higher. Which one would Old Chang Kee choose?

Having said this, you would think that a mall located beside a MRT station is a sure winner? Let’s think of some “bad” malls with seemingly good location.

Before Bugis+ is doing well in its current state, its previous life was Illuma (Jack Investments). With a prime location beside Bugis MRT and the busy Bugis Street, it was failing so badly until it was acquired by Capitaland Mall Trust. A minor renovation improved the mall design. Link bridge provided direct access to Bugis Junction. Tenant mix was improved. CMT incurred minimal costs by using the same team that managed Bugis Junction and added Bugis+ to their care – yes, large REITs enjoy economies of scale.

CityVibe is just beside Clementi MRT and was already there even before Clementi Mall. Check it out and you would know what I mean. How about Orchard Central which is beside Somerset MRT? Sometimes, boring malls with simple layouts are better.

What about “good” malls with seemingly bad location? Paragon, while situated at Orchard, is nowhere near either Orchard MRT or Somerset MRT station. IMM is the poorest cousin among the Jurong East malls and is the furthest away from Jurong East MRT. Both of them aren’t doing too badly at all, considering the circumstances.

Is It Hot Or What?

Singapore is a tropical country near the equator. The weather is either too hot or prone to rain, and humid all the time. Cloudy and windy is the best we can hope for. We grew up in this country but that doesn’t mean that we have adapted to the weather. Also, what this means that the weather isn’t exactly conducive for much outdoor activities. OK – I’m spoilt.

I remember visiting Sydney in April last year and people would take walks in the parks and chill outdoors. Folks would walk their dogs, families would DIY a picnic session, teenagers are practicing their dance moves while would-be musicians are honing their skills. Of course, I’m not saying these are not possible in Singapore but the weather is a strong deterrence.

As an alternative to the outdoors, malls provide a comfortable shelter against such “harsh” elements. Sometimes, we don’t go to mall to do something. We go to malls because there isn’t any better alternatives.

Threat Of Shopping Online

The impact of online shopping cannot be neglected, and the direct impact falls on retailers whose products and services can be easily replicated online. It is not difficult to notice that changing tenant mix of malls in recent years.

Based on my memories, the most adversely impact retailers include those dealing with music and video (remember CD shops? Poh Kim DVD?). The deadly combination of online shopping and high-speed internet literally killed them off.


Survival of the fittest. The resilient sectors will take the opportunity to fortify their position. Notice how an increasing percentage of mall tenants are now in the F&B business, or service related such as hobby-related classes, medical clinics, tuition centres etc?

Malls Are Multipurpose Lifestyle Destination

If you still equate malls in Singapore with retail shopping (in the traditional sense), it is perhaps time to get that idea out of your mind.

Travelling has brought me to regional countries such as Malaysia, Thailand, Taiwan, Japan and Australia, and the malls overseas remind me a lot of the malls we used to have. Buildings tend to be a bit more focused on a single purpose. You get a building that functions as a cinema. A mega store for groceries. One standalone building for library. The situation is quite unlike what we have here in Singapore. Shopping malls in Singapore nowadays is a very different beast from shopping malls overseas. It didn’t used to be like this, but over the years it has significantly evolved to adapt to our changing lifestyle.

Don’t just think about malls in the prime district like Orchard Road or city area. What do you see in other malls these days? Libraries, roof top playgrounds, groceries, cinemas, tuition centres, dance studios, hair/spa salons, Telcos, banks, karaoke, and this list goes on.

I hardly do much retail shopping at malls these days but I do drop by very frequently to get a variety of things done on a regular basis. “Necessity shopping”, they call it. I have dinner on weekdays at malls because we seldom cook at home. Grab some groceries too. I visit Shaw cinemas monthly or so. I got my glasses made at Owndays. I top-up my supplies of contact lens at Capitol Optical. I visited the library at Compass Point before it was renovated. I visit Starhub stores to tweak my plans and banks to settle finance issues.


Has “mall-ing” become a way of life for Singaporeans?

Re-Read The Article

Now, re-read the Bloomberg article. While the first two points suggests it is an island-wide problem, it is actually targeting a very specific sector –

Empty storefronts in Singapore’s prime shopping district may become a more common sight. Vacancies in the city’s main Orchard Road area, a magnet for tourists lured by malls and Japanese department stores such as Takashimaya, have risen to a five-year high and across the island, they’ve soared to the highest since 2009.

Done? By now, it should be pretty obvious that the dire straits aren’t exactly applicable to all malls, isn’t it? Ironic that they mention Takashimaya which is located in Ngee Ann City, and they are one of the better performing ones. Well, despite the on-going rental dispute, that is. 无风不起浪?

  • Tech Savvy
    Malls will need to remodel to focus more on food-and-beverage outlets, entertainment, services and banking, and less on fashion and consumer products.
    It has already been the case. Only realizing it now? “Late” is an understatement.
  • Closing Stores
    Marks & Spencer, Zara, New Look, Celio etc.
    Brands like Uniqlo and H&M are doing quite the opposite. Once again, it is a matter of where?
  • Chinese Pullback
    Singapore is reeling from the impact of China’s slowing economy and fewer flashy purchases by visitors from the mainland.
    Where do tourists typically visit?
  • Economic Headwinds
    If the economic headwinds persist and consumers cut back their discretionary spending.
    Yay for necessity spending.
  • Supply Rising
    Singapore will add almost 4 million square feet of retail space over the next three years.
    Again, the question is where?

As an investor, we should recognize that the same set of problems will not affect all malls, and by extension, retail REITs in the same manner.


Now you know why some retail REITs have such low yield?

Take A Walk

Retail REITs is a very unique category among equities investment because everything is so open and transparent. In addition to the reports and figures you can so easily obtain online, you can walk into any of the properties you intend to own to do a field study.

How is the footfall like during the weekdays? How has the tenant mix changed in the past few years? Was there any asset enhancement initiatives? Has the management resolved the nagging issues with the mall? Did they renovated the restrooms? Do they have nursing rooms? Every bit of information is helping you to make a better decision.

This is also one reason why I steer clear of non-SG based REITs. If I can’t see it, walk inside them or check out their facilities, I don’t get the full picture of what exactly it is.

Management, Management, Management

To me, the most important factor to the success of a REIT is still a good management team. It all boils down to a good REIT manager that has the experience and competency to juggle both the short term and long term interests of the investors.

Even when faced with the same set of challenges, a good management team will ensure that the REIT will weather the storm and emerge stronger to take advantage of the changing tide, even when others are faltering.

Learn A New Thing Today

We are perhaps familiar with REITs in the sense that in addition to maximizing occupancy, there is a tendency to push for positive rental reversion to maximize rental income.

One way to obtain above average rental income is to negotiate a favourable agreement by imposing a Percentage Rent, also know as Overage Rent. In addition to the base rent, this allows the REIT to benefit where a store revenue exceed a preset amount. This form of agreement can be put into place for both good and bad times. In poor economic conditions, REITs can help tenants by having a lower base rent but take a share of the store profits if their performance exceed expectations – all the while maximizing occupancy.

That’s it to my ramblings for now. A few of the slides I shared in this post, it does not infer anything regarding the competency of the REIT. I just felt that the informative slides by CMT provided very good points to take note of. Once again, this post is only the tip of the few icebergs I can recall. Interested in REITs? Pick up a copy of Building Wealth Through REITs by Bobby Jayaraman.