S-REIT Sector: Retail REIT & Office REIT

Feeling pumped?

Wait there’s still a few more chapter to go.

Everything that has been covered prior to this chapter are on the basics of S-REITs and with some areas that I covered slightly deeper. I think it should be enough to provide you an overall understanding of the pros and cons, things to watch out for and the benefit of REITs investing.

However, there is still one important aspect of REITs that I have not touched. That is the sector!

In Singapore, there are currently 5 sectors of REITs: Retail, Office, Industrial, Hospitality, Hospital and Residential.

Although they all are called REITs but they are all very different from one another and each has its own risk and reward depending on: defensiveness in retail income, growth potential, weighted average lease and interest rate sensitivity.

In other words, we can’t compared REITs based on yield and other metrics without considering the sector they are in.

When a sector offers higher yield, investors generally can consider it as the sector entails higher risk.

One way to look at it is the market is demanding for higher distribution yield, and since yield is derived from net rental income which is often fixed - that means the denominator which is the price must come down to in order to achieve the yield that the market desired.



Retail REIT

NameSymbolDividend YieldProperty YieldDebt To AssetsPrice / NAVIndustryWALEDistribution Frequency
CapitaMall TrustC38U5.82%6.30%33.70%1.04retail2.1Quarterly
Fortune REIT HKDF25U5.62%3.50%30.60%0.63retail3.11Semi-Annually
Frasers Centrepoint TrustJ69U6.29%4.90%28.70%0.96retail1.5Quarterly
Lippo Malls TrustD5IU9.37%6.90%31.60%0.86retail4.9Quarterly
MapletreeGCC TrustRW0U7.54%4.30%41.20%0.77retail2.5Quarterly
SPH REITSK6U5.73%5.30%26%1.01retail2.2Quarterly


  • WALE: 2.64 years
  • Div Yield: 6.75%
  • Property Yield(cap. rate): 5.30%
  • Gearing: 31%

Retail REITs are REITs that hold properties such as shopping centres, malls, shopping arcades and other premises meant for retail activities. Properties under Retail REITs can be located either in metropolitan city centres or suburban neighbourhoods and they usually exist as an integrated project consisting of not only retail outlets but other amenities such as bowling alleys, cinemas and skating rinks as well. Prominent Retail REITs in Singapore include CapitaLand Mall Trust which holds Tampines Mall, Junction 8 and Clarke Quay amongst others.


If you were to visit all of our shopping malls, then you would probably notice that almost all them are either managed by CapitaLand Mall Trust or Frasers Centrepoint Trust. These two alone already hold up to 22 shopping malls in Singapore!

There are two types of shopping malls: Suburban Malls and City Malls. Suburban Malls are malls that cater to resident living nearby or in their catchment area, such as Causeway Point, North Point, Tampines Mall, Clementi Mall, etc. City malls are in a town area like Wisma Atria, Ngee Ann City, Suntec City, etc.

Suburban Malls

Suburban Malls have strong defensiveness in their rental income, because they provide recession-resistant necessities such as food and clothing. Their lease agreements with most retailers are based on base rent plus a cut of the retailer's gross turnover(GTO) that allows breathing room for retailers during a market recession by charging them less rent to remain at occupancy (also applies to City Malls). This also allows the REIT manager to offer a rental rebate to targeted retailers in order to maintain rental income during bad times.

City Malls

The defensiveness in rental income for City Malls is weaker than for Suburban Malls, mainly because of their reliance towards tourists for retail sales. Goods and services offered are generally pricier than in a Suburban Mall. In a recession, consumers would be more reluctant in luxury spending, which would drive down the rental income.

There has been a concern over the shift to digital shopping; fashion wares and electronics goods can be bought cheaply online which lowers the retail sales in malls. REITs managers have long anticipated this by shifting into new F&B and services focused models. It’s no surprise that we see F&N being the largest tenant mix in most malls.

Certain services like haircuts, movies, cafe gatherings, manicures, and banking services in which banks are setting up more branches in shopping malls are the services that are not replaceable by an online store.

Key drivers for which to look out are GDP, tourism arrival, population growth, price per square feet and national average wage.


Transparency — To know whether a mall is doing well or not is just a simple effort of doing a physical inspection by walking down to the mall and observing its tenant mix, number of shoppers, and architecture. This would give you a general feel for its performance.

​Structural advantages — Retail malls in Singapore enjoy many unique advantages that malls in other countries do not. First, the only place we can shop other than a mart is a mall; we do not have many street shops either. Second, our increasing population growth will lead to more aggregate spending, which translates into increasing retail sales. Third, our hot and humid weather means the typical place for gathering and hanging out will likely continue to be in a mall. Fourth, shopping malls have become a common family entertainment venue because there is no place better to go in Singapore, unlike other countries. Fifth, shopping malls provide essential services like haircuts and food which are typically recession-proof.

Finally, our limited land means a high barrier of entry for competitors. In addition, our government has been prudent in releasing new land permits unless the population growth justifies it.

No downward pressure — This is different from office an REIT where rental cost for the office space will impact competitiveness as an international business hub in which the government may release supplies to keep the cost competitive.

From the company perspective, saving cost on the middle and backend office has always been an ongoing objective. Since there is no difference between an operational office located in a CBD area or a suburban area, business managers will always be on the lookout for cheaper rent. Any rental increase by a landlord will easily cause tenants to move out to a more affordable place, i.e. a business park or suburban area.

​This is not the case, however, for retail malls, because the location does impact their retail sales. Retailers are more concerned with the occupancy cost to sales ratio rather than cost alone. In other words, the REIT manager can increase the rental rate so long as the retail sales justify it.

​Organic growth — A retail REIT can increase its net profit income and asset value through an Asset Enhancement Initiative (AEI) by increasing plot ratios, decanting a floor with a lower value to a floor with a higher value by upgrading amenities, i.e. children’s play zones, or carving out new space from carparks or common areas. For example, the AEI at Causeway Point has experienced 70% new and upgraded shops, which resulted in 22% growth in its net profit income.

​Resilient during market downturn — As mentioned above, the services and goods provided by malls are generally essential to the consumer, and a REIT manager can offer a rental rebate to retailers during hard times. This means they will be able to ride though a market downturn. It allows the occupancy level to be maintained, thus reducing the impact of rental loss during a recession. In fact, retail malls’ occupancy held steadily high (90%) during the dotcom bust, SARS, and the 2008 financial crisis.


Too many articles are praising the advantages of our local retail REITs, with very little talk about the flipside of it that I almost have to make up the points. The below are some of the disadvantages.

Shorter lease term A retail REIT has a shorter lease term than a REIT in other sectors. The lease term for a small retailer can even be monthly. As to whether this poses a risk for the vacancy rate will depend on the REIT manager’s ability to replace new tenants.

High capital expenditure Shopping malls may undergo refurbishment or building upgrades to attract and grow the number of shoppers. Retail REIT managers are known to be aggressive on an AEI in which there is a frequent need to raise additional capital in the form of rights issue or debt. This exposes unit holders to expansion risks, i.e. the post-AEI does not result in net positive returns.

Can be over reliant on a few anchor tenants — Some shopping malls may have a few anchor tenants holding a significant amount of gross lettable space. For instance, the Causeway Points tenants (Metro, Courts, and Cold Storage) make up 18% of its total Gross Rental Income. In other words, in the unlikely event that these three go out of business, 18% of the shopping mall’s rental income will be gone.

Office REIT

NameSymbolDividend YieldProperty YieldDebt To AssetsPrice / NAVIndustryWALEDistribution Frequency
Frasers Comm TrustND8U7.64%5%37.30%0.82office3.4Semi-Annually
Keppel REITK71U7.13%3.50%48.90%0.67office5.2Semi-Annually


  • WALE: 5.2
  • ​Div Yield: 6%
  • ​Property Yield(cap. rate): 5%
  • Gearing: 39%

Office REITs are REITs that hold office properties and other premises that are rented out to commercial organizations for the purpose of non-manufacturing and non-retail business activities. Properties of Office REITs are typically located in the Central Business District (CBD) of a city where demand is the greatest and rents are the highest.


Aspire to own one of those glamorous sky-high office buildings like Marina Bay Financial Centre One, Raffles Quay Ocean Financial Centre, One Raffles Quay stipulated in Central Business District (CBD), etc.?

These are easily the priciest real estate in many cities. Having even a small stake is far beyond possible for the average man on the street; but now, with Keppel REIT this becomes possible.

​Key drivers to look for are GDP and a grade-A office building PSF depending on the office grade. Office REITs are one of the most volatile and least defensive REITs as compared to other sectors’ REITs.

Their performance is susceptible to the business performance of large foreign MNCs, mainly from the US and EU in sectors such as banking and finance, oil and gas, law, and corporate services. To put it simply, if those MNCs are doing well, the REIT manager is able to increase rent that turns into a higher distribution income for the investors. The opposite holds true as well.

In addition, Singapore continues to attract large MNCs to set up their base over here.


Limited capital expenditure — Other than the routine maintenance and in some rare cases building enhancement, there is not much capital expenditure required.

Longer lease term comparatively — This depends on the manager and his or her ability to secure anchor tenants. An office REIT typically has lease terms that are longer than those for shopping malls, where the term can be as short as one month! The presence of anchor tenants also signifies a certain degree of quality of the building and mitigates vacancy risk because of the lease terms.

Singapore being the platform for Asia’s growth — Many foreign companies are joining the economic growth of Asia, but currently, we are still in the early stages of the growth. Singapore being in Asia and having great business infrastructure means that we will be the first choice for foreign companies to set up their bases here.

Competitive rental rate among Asia’s other cities  To compete internationally, particularly with Hong Kong, for quality office space in Asia, our grade-A rental rate is still far more competitive in pricing (Hong Kong’s rate is double that of Singapore.


Lag behind economic cycle — Office REITs have historically been shown to easily lead to an over or under supply situation due to the lag that is caused by the slow building completion time and unpredictability of the economy.

For example, following the dotcom and SARS crises in 2000–03, there was an oversupply in office space; from 2003-05, the economy grew steadily and little land was released.

From 2006-07, the demand for office space increased rapidly, reaching 100% occupancy with a new high of $18/sf ($10.20 at present). At the same time, the government released new land in the Marina Bay area in anticipation of future growth.

And just as the supply of office buildings entered into the market in 2009, our economy went into a recession. :)

Higher volatility — Office REITs are susceptible to the movement of the general economy, mainly because their tenants are large, foreign MNCs for whom business activity is correlated to the global economy. Hence, any shift in the economy will lead to price fluctuation. Historically, office REIT investors can dump lots of units during poor economic sentiment. If you are an investor who cannot stomach economic volatility, office REITs are not for you!

Downward pressure on growth — Office rental rates are closely monitored by the government, because they affect our country’s business competitiveness against our regional neighbours. Hence, any sign of a rapid increase in rent will lead to a government effort to increase supply.

Another downward pressure is coming from the shift of office space from CBD to suburban for cost reduction.

Growth through acquisition — Because of the above reasons, organic growth is unlikely to be effective. The remaining options are through acquisitions (which means the need to raise capital through either debt or equity), or capital recycling (selling office real estate during good times to lock in profit). However, it’s likely that they will replace the assets rather than pay out capital to the unit holder.

Retail & Office Hybird

NameSymbolDividend YieldProperty YieldDebt To AssetsPrice / NAVIndustryWALEDistribution Frequency
CapitaComm TrustC61U6.33%4.90%29.50%0.84retail and office7.7Semi-Annually
MapletreeCom TrustN2IU6.24%5%36.40%1.05retail and office2Quarterly
OUE Commercial REITTS0U5.78%?33.90%0.71retail and office4.5Semi-Annually
Starhill Global REITP40U6.76%5.50%35.40%0.84retail and office6.8Quarterly
Suntec REITT82U6.34%4%35.30%0.74retail and office3.50Quarterly


  • WALE: 4.9 years
  • ​Div Yield: 6.42%
  • Property Yield(cap. rate): 4.85%
  • Gearing: 34.15%

Not all REITs hold property specific to their sector. Even though most do, retail and office are two real estates that are often mixed into the REIT portfolio. Where there are buildings that have the mix of both retail units and office units, this is called a hybrid.

For example, Wilkie Edge, an office shopping mall managed by CapitaComm Trust, has both retail and office space, or our prominent Ngee Ann City (Starhill Global REIT), which has office units at above-level and retail units at the bottom to middle levels.

Others like Raffles City(CCT) has an office tower, a shopping mall, two hotels, and a convention centre!

For a hybrid REIT, the advantages and disadvantages will be the same as what I’ve covered on each of the retail and office sectors, respectively and proportionally on the portfolio of properties.

For hybrid buildings that have a mix of both offices and retailers, they may enjoy a certain synergy that can increase the overall profitability of the building over a standalone type of building.

Are you still following?

If yes, that's good!

Because you are almost there, in the next chapter we'll be covering the remaining REITs sectors for industrial REITs, healthcare/hospital REITs and hospitality REITs.

And, finally we will get into REIT index and unit trust!

REITs Singapore

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