The Gf and I went to jalan-jalan in a shopping mall. Here are some of my thoughts on Retail REITS. If you like retail REITS, or are super knowledgeable about them, do comment at the bottom of this page. I would love to hear your thoughts!
Being an investor and an entrepreneur, every outing is an opportunity to analyse businesses and scout for investing insights on the ground. Somehow, this mindset has become in-built. So while I was walking around WestGate and JCube one weekend, I kept staring at which stores are the most crowded, where are people eating, what kind of shops or amenities are present in the shopping centre. I could not help but keep thinking how the eCommerce wave would affect brick & mortar businesses, and then affect rental income from REITS.
The 2 retail REITs that capture my attention are CapitaLand Mall Trust and Frasers Centrepoint trust. I shall elaborate more about it later.
Will eCommerce threaten retail REITs?
Many people are pointing to the unstoppable tide of eCommerce as a risk to retail REITs. Although I believe that we will see less brick and mortar stores, I don’t think that eCommerce will be a threat to mall owners.
Firstly, we cannot assume that mall owners would just sit back and let technological changes sweep them away. Businesses are run by humans, and the goals and directions of businesses are set by humans. To look at businesses or analyse them as a static, unchangeable entity is inaccurate. Businesses are dynamic and good business owners know that changes are inevitable.
To survive, they must catch the tide of opportunities or they will just drown in a sea of changes.
So, to cope with the eCommerce threat, mall owners have to re-brand their malls not just as a shopping spot, but as a lifestyle spot.
“Lifestyle” businesses include gyms, spas, tuition centres (sorry that’s a no-life, no-childhood business -haha!)… and it also includes leisure businesses like bowling, pool or watching movies in cinemas.
Mall owners would wisely take into account the eCommerce changes and accommodate mall space for more Lifestyle business and restaurants.
Secondly, it would also be strange to assume that in the distant future, we would just stay at home and order everything from our computer or mobile phones. Humans are social creatures. I believe people would still go out to dine at restaurants and partake in leisure activities in a lifestyle hub.
As the landscape changes, so will our shopping malls. I believe that shopping malls will continue to exist and remain relevant to consumers needs in the future. Hence, I am looking at retail REITS to provide more dividend yield to my portfolio in the future.
A Brief Summary of 2 Retail REITs
The two REITs that catch my eye are CapitaLand Mall Trust and Frasers Centrepoint Trust.
CapitaLand Mall Trust
CapitaLand Mall Trust manages properties in areas with high-footfall like Clarke Quay, Raffles City, Bugis, Plaza Sing, Junction 8 and some of the shopping centres in the ever-so-crowded west side of Singapore. The management and parent company are also financially-sound and has a long track record of delivering good results.
Based on current price of $2.13, the dividend yield (ttm) is about 5.3%. The yield may not be as high as those of industrial REITs (7-8%), but I am willing to take a lower yield for less risks, more stability, and a proven track record.
Frasers Centrepoint Trust
I really like Frasers Centrepoint Trust as they own properties located within the heartland area. Unlike Capitaland Mall Trust, which depends on tourist footfall, Frasers Centrepoint’s malls like Northpoint, Anchorpoint, Bedok Point, Causeway Point, will always attract a constant stream of people from the heartlands. (Tourist traffic is affected by economic downturns > affect businesses in shopping centres relying on tourists’ patronage.) Hence, Frasers Centrepoint can be said to be more resilient.
Based on current price of $1.96, the dividend yield (ttm) is at a tasty 5.9%.
Which one is better?
When comparing these 2 REITs, it may seem that Frasers Centrepoint has a higher yield, and better track record of delivering increased Distribution Per Unit (DPU). Frasers Centrepoint malls are also located in surburban areas which attract a more constant footfall as compared to CapitaLand Mall Trust. Does that mean that Frasers Centrepoint Mall Trust would be a better investment?
If Fraser’s and Neave, the parent company of Fraser Centrepoint Mall Trust, was still under the same management, I would say “Yes!” in a heartbeat. However, F&N is now under control of Charoen Sirivadhanabhakdi, the Thai mogul of Thai Beverage, who mounted a bidding war to take over F&N. He is restructuring the company to further his own cause so it is unclear if this will somehow affect Frasers Centrepoint Mall Trust adversely. His intentions are unclear and it’s a grey area. Currently, Frasers Centrepoint Mall Trust is chugging along just fine…
For me personally, I would forsake 0.6% difference in yield and pick CapitaLand Mall Trust as the parent company seems more ‘stable’ than Charoen. Until Charoen intentions are made clear, then I may reconsider Frasers.
Why Invest In REITs?
If you were to invest in property, you probably need to allocate a large chunk of money to buying the property, which may skew your portfolio allocation. (<<<Unless you are rich of course!) Most readers would know that I am pretty much a perma-bull on stocks and would prefer to keep my portfolio that way.
With REITs, you can “own” a piece of property and collect “rental” income in the form of dividends, without going through the hassle of managing renovation or finding tenants or other silly jobs yourself. With CapitaLand Mall Trust, I get to own a portfolio of Singapore’s shopping centres and entertainment districts.
And now with Zouk moving back to Clarke Quay, perhaps it’s time for me to earn back all the money I gave them during my army days!!!
Also, ever since I have shifted my focus to U.S stocks that have a more global reach, I am missing out big time on dividend income. Not that I need it desperately, but some spare cash flow provides more options to invest especially during stock market corrections. Having more Dividend Income would provide me with flexibility in expenditure or reinvestment.
Although my investment goals is more toward aiming for multi-baggers, I foresee myself transitioning to an Income Investment style when I am approaching retirement. So it doesn’t hurt if I get some skin in the game now.
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