On Wednesday, Apple unveiled the iPhone XS, XR and the Apple Watch Series 4. In the same week, Apple Singapore listed new job postings for retail staff for a location in the East, fuelling speculation that Apple is opening its second official store, after Apple Orchard Road, its first in Southeast Asia, opened to much fanfare in May 2017.
If this is true, the move will increase Apple’s demand for physical retail space. This runs counter to many brick-and-mortar retailers in Singapore, who are increasingly looking to expanding their online presence for growth. For example, DIY chain Home-Fix has reduced its number of physical stores in Singapore from 26 to 16 since 2016, but actively bolstered the company’s online presence.
Retail landlords are also feeling the sting from a cooling commercial rental market. For 2Q2018, even though the Singapore’s vacancy rate for retail space fell by 0.2% to 7.3%, retail rents fell by 1.1%.
In July, credit research agency Moody’s said that an elevated supply of retail space would prove a greater challenge than online shopping for Singapore’s retail real estate investment trusts (REIT) over the following 12 to 18 months.
This contrasts with the office market, which is facing a supply crunch thanks to a net office take-up rate of 879,000 square feet, marking a seven-year high. For Q2 2018, the CBD Grade A office market saw its vacancy rate fall by 1% to 7.8%, while rents rose 2.5% to $9.28 per square foot.
On this week’s edition of 4 Stocks This Week, we will look at 4 S-REITs listed on the SGX.
Ascendas India Trust (SGX: CY6U)
Ascendas India Trust (AIT) is a property trust which owns seven IT parks and six modern warehouses across Bangalore, Chennai, Hyderabad, Pune and Mumbai.
AIT announced that total property income fell 3% in SGD-denominated terms to $44.9 million year-on-year (YOY). Even though base rent income rose by 10% to $33.5 million, helped by additional income from its AURUM IT SEZ and aVance 5 & 6 projects, this was not enough to offset the sharp 31% decline in operations, maintenance and utilities income.
However, on the back of much lower operations, maintenance and utilities expenses, net property income grew 10% to $33.6 million. This caused distributed income to skyrocket by 36% to $16.6 million.
AIT has benefitted from buoyant demand for office space across India’s top cities, which grew 25% and reached an all-time high of 11 million square feet.
Over the last three months, AIT has risen by 6.6%, but year-to-date (YTD) AIT is down by 1.7%.
With a market cap of $1.16 billion, AIT closed at $1.12 this week.
CapitaLand Commercial Trust (SGX: C61U)
CapitaLand Commercial Trust (CCT) is Singapore’s largest commercial REIT by market capitalisation. Its portfolio mainly consists of office and commercial buildings located in Singapore’s prime Central Area, including Capital Tower, Asia Square Tower 2, Six Battery Road and HSBC Building. It also has a 94.9% interest in Gallileo, a commercial property located in Frankfurt, Germany.
For Q2 2018, CCT reported that its revenue grew by 12%, or $10.5 million to $98 million. CCT successfully signed 335,000 square feet of leases, of which 14% were new leases. This caused distributable income to balloon by 14.3%, or $9.9 million to $79.3 million.
CCT has also benefitted from higher Singapore property values, which caused its Singapore portfolio to grow by $133.7 million to $10 billion.
On Wednesday, HSBC, the sole tenant of HSBC Building, signed a one-year lease extension with CCT. HSBC also announced that it would move its headquarters to Marina Bay Financial Centre Tower 2 from 2020. As of 30 June 2018, HSBC currently contributes 4% of CCT’s monthly gross rental income, making it one of CCT’s top 10 tenants.
As of 1 June, Temasek has a 31.24% deemed interest in CCT. Over the past three months, CCT jumped by 7.9%. However, CCT is still down 8.3% YTD.
With a market cap of $6.62 billion, CCT closed at $1.77 this week.
Mapletree Commercial Trust (SGX: N2IU)
Mapletree Commercial Trust (MCT) owns five properties in Singapore, including Vivocity, Mapletree Business City I, PSA Building, Mapletree Anson and Bank of America Merill Lynch Harbourfront.
MCT reported that its gross revenue inched upwards by 0.7% to $108.5 million. MCT was also helped by weaker property operating expenses, which fell by 4.2% to $22.6 million. However, net finance costs spiked by 9.3% to $16.9 million, which resulted in a marginal 0.4% increase of income available for distribution, to $64.6 million.
In July, Vivocity officially launched its new Basement 1 retail extension. The move adds an additional 2,600 square feet of fully-leased retail space and 10 new brands to Vivocity.
In August, software developer Hubspot announced it would open an additional office at Mapletree Anson as it gears up for expansion and increase its headcount to 250 by 2021.
MCT has risen by 4.5% over the past three months and is up 1.2% YTD. With a market cap of $4.73 billion, MCT closed at $1.64 this week.
Starhill Global Real Estate Investment Trust (SGX: P40U)
Starhill Global REIT is a REIT based in Singapore. Singapore assets constitute 68.8% of Starhill’s portfolio, which includes both 74.23% and 27.23% of the total share value of the strata lots in Wisma Atria and Ngee Ann City respectively. Starhill also has interests in office and retail properties in Australia, China, Japan and Malaysia.
For the quarter ended 30 June 2018, Starhill reported that its gross revenue dipped 3.9% YOY, or $2.1 million, to $51.6 million. This caused net income distributed to shareholders to fall by 7.6% to $23.7 million.
Starhill has benefitted from the lack of new supply introduced in the Orchard Road market, which saw vacancy rates decline to 5.6% in Q2 2018, which is the lowest since Q4 2014. For Starhill’s Singapore portfolios, committed office occupancy leapt from 90.7% to 95% for Q2 2018.
In Australia, Starhill’s Plaza Arcade recently underwent a A$6.5 million redevelopment project aimed at improving the experience for customers and retailers. Its new anchor tenant, Uniqlo, has rented 2,000 square meters of retail space scattered across three levels. This is expected to contribute to Starhill’s revenue in the following quarters.
In April, Maybank reduced its price target for Starhill from $0.70 to $0.60 per unit, claiming that Starhill was overvalued given its weak Singapore core. While Starhill traded at a multi-year low in late June, Starhill succeeded in turning around its fortunes and gained 7.5% over the past three months. Despite this, Starhill is still down 7.7% YTD.
With a market cap of $1.56 billion, Starhill closed at $0.715 this week.
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