MTI busts myths of REITs not driving up retail rents

[investor101]

It’s just a misconception, asserts report.

Contrary to popular belief, a study released by the Ministry of Trade and Industry’s Economics Division asserted that REIT mall acquisitions are not driving up retail rents.

The study noted that while REIT-owned malls indeed charge more for space, they nonetheless have better physical characteristics compared to single-owner malls.

“After controlling for the observable characteristics of the malls such as location and the asset
enhancement initiatives (AEIs) taken, we find that the rents in REIT-owned malls are not
statistically different from rents in single-owner malls,” noted the report.

The study also asserted that there is no evidence to indicate that rents in REIT-acquired malls increased due to the acquisition.

Here’s more from the study:

Indeed, a simple analysis of the location of the malls shows that REIT-owned malls tend to be better located (e.g., in core central region) and are closer to key amenities like MRT stations. It would thus be important to control for the impact of such characteristics on retail rents in the malls, in order to isolate the impact of REIT ownership on rents.

This study finds that the higher levels and growth rates of rents observed in REIT-owned malls may have given rise to the perception that REITs are driving up retail rents in Singapore. Nonetheless, this phenomenon appears to be largely driven by the better physical characteristics of the REIT-owned malls.

- See more at: http://sbr.com.sg/commercial-property/ne...0Vvwk.dpuf

Havent been contributing, so here you all go =)

As a REITs investor, it is good news that the REITs can get higher rentals for us.

One man's meat is another man's poison.

Anyway, I don't really believe the MTI's report. From what my business contacts tell me, rents tend to go up by double-digit percentages during each renewal. If the tenants get really really lucky, rents either freeze or drop by less than 5%. If average unlucky, go up by 20%. Either that, or landlord demands a flat rental plus a percentage of the sales. Sales, not profit. That means the poor tenant has to disclose to the landlord confidential info such as daily sales.

The tenant is completely naked and exposed, and has no ability to negotiate besides packing up and leaving, which is often done only as a last resort. The playing field is weighted very heavily in favour of the landlord.

The system is exploitative. So, invest more in REITs when their share price is down. I did so for stocks like CIT and Suntec REITs. Will probably reduce exposure to REITs when the government pass laws that seek to curb profiteering by landlords and developers.