The three important attributes of a property, as the adage goes, are “location, location and location”. Especially for retail properties, this adage holds true.
For my analysis of retail properties, specifically in the context of REITs, I would expand the “three locations” into something more detailed; the location of influence, the location of competitors and the location of complements.
Before we begin, let us take out a map, and we use the Singapore map for reference, since we are more familiar with the local retail properties here. Next, on each of the retail property the REIT owns, draw a circle with a one kilometre radius.
With this circle(s) in place, we could clearly use the “three locations” for our analysis.
Location of influence
Back in our geography days, we had learnt something called “area of influence”, where a certain shop services a particular area. The location of influence is similar to this concept, and the circle on the map denotes the retail property’s potential visitors and consumers. The more concentrated the visitors/consumers is, the better the chance of the retail property being visited, ceteris paribus. A good example of a good concentration would be the property mall located within a dense residential area.
Location of competitors
If there are other retail properties within the circle (and also those which are outside of the circle but close to its borders) and they do not belong to the retail REIT concerned, these would be deemed as competitors. This means the visitors/consumers from this circle would have choices of visiting either the property in your analysis or somewhere else. However, do conduct further analysis on these competing properties to see if they are strong ones or not.
Location of complements
Other than competitors, there are also complements which may help the retail property in question. A good complement example would be the MRT station or bus interchange, where a retail property situated next to these would definitely bring in a high traffic of visitors/consumers. Another complement feature would be whether the retail property is situated along the tourist belt of Singapore (e.g. Orchard, City Hall, etc.).
The above presents one of the interesting ways of analysing retail REITs. Do take note of other factors (as described in The Bedokian Portfolio, Chapter 12 – Selection and Selling) before making the decision of transacting in the REIT.
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