SINGAPORE (Feb 19): Much has been written about the future of retail, including digitalisation and the challenges brick-and-mortar malls face. Managers of retail real estate investment trusts have to juggle several balls such as tenant mix, tenant sales, shopper traffic and operating costs at the same time. The biggest challenge appears to be keeping malls relevant in the age of digital disruption. And, at the end of every six months, the REIT has to announce a distribution per unit (DPU) that has to be stable. At the end of every year, investors scrutinise its balance sheet for declines or increases in the valuation of the portfolio.

REIT investors buy these instruments largely for the yield. But as with all investors, capital preservation — at the very least — should be paramount. No point getting a yield while the capital value of your investment falls.

Shopping malls are valued based on their rental outlook, which in turn depends on occupancy rates, rental reversions, tenant sales and so on. For CapitaLand Mall Trust, which owns 14 malls and meaningful stakes in a further two, its 30% interest in Westgate posed a problem last year. The property’s valuation fell $29.7 million, or 9.3%, to $289.5 million. This is despite a compression in its capitalisation rate of 5.2% to just 4.75%. If not for that, its valuation would have fallen further.

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