THE IMPACT OF ASSET ENHANCEMENT INITIATIVES ON THE PERFORMANCE OF REIT-OWNED RETAIL ASSETS

Abstract

The primary objective of this study is to analyse the profitability of asset enhancement initiatives (AEI) that have been performed on retail real estate assets by S-REITs between 2002 and 2014, and to isolate the effects of the various categories of AEIs against asset performance, and where possible, indirect effects on REIT performance. The empirical results of the financial analysis showed that minor AEIs with less capital expenditure were ultimately more profitable compared to that of major AEIs. This is hardly surprising, as these minor AEIs incur much less capital expenditure, and typically consist solely of specific high-yielding AEI categories such as minor spatial reconfigurations. Conversely, major AEIs with higher capital expenditure are often more holistic and comprise multiple categories of AEI, and tend to look toward the long term. These include major decantations, and changes to the asset’s façade, carpark systems, and public spaces. A detailed look into the more popular forms of AEI has shown mixed results pertaining to these AEI categories. As expected, decantation being the more complex AEI requiring larger capital outlay, is much riskier, but with the right execution strategies, has the potential to not only increase the performance of the asset, but can increase the performance of the REIT as well. From the results, tenant mix enhancement is better suited to be carried out in conjunction with higher-yielding AEIs, the effects of façade enhancement is still uncertain, and connectivity enhancement did provide a pull factor for drawing consumers. AEIs also can result in spillover effects for neighbouring assets and on the portfolio level, as evidenced by the spillover effects on Plaza Singapura with The Atrium@Orchard’s AEI.