Singapore listed REITs recently completed announcing their quarterly earnings results that mostly met APN’s expectations. The REITs that were best able to capture positive rental reversions as well as deliver above average dividend growth (either organically or through accretive acquisitions) performed the best, while the underperformers included REITs that experienced higher than expected vacancy rates due to supply pressures. Here are our top three insights:
1. Retail REITs proved their defensive nature despite slower economic growth, flat tourist arrivals, labour cost constraints and higher mortgage rates that are causing lacklustre retail sales. The Fund is positioned defensively in this sector with the REITs we own focused on the more resilient non-discretionary segment of the retail market. APN also favours REITs that are able to drive organic growth through undertaking asset enhancement initiatives as well as disposing of underperforming assets. APN believes performance will be directly related to location, with the best-in-class retaining market share.
- Capitaland Mall Trust (CMT SP) reported portfolio metrics that are tracking well with year to date shopper traffic up 4.2% and tenant sales up 4.4%. Rent reversions were also strong at 4.1% and a circa 81% retention rate among tenants indicated stable demand dynamics.
- Frasers Centrepoint Trust (FCT SP) reported growth in tenant sales of +2.1% year on year as non-discretionary segments such as food & beverage and supermarkets continued to do well, and their shopper traffic numbers were up strongly at +8.2% year-on-year.
2. Industrial REITs were under some pressure from near term supply concerns that are causing moderating rent reversions, however occupancy rates remained mostly stable. Active portfolio management strategies paid off and trust managers continue to look overseas to achieve their portfolio growth targets.
- Ascendas REIT (AREIT SP) maintained strong organic growth with current portfolio rents expiring circa 11% under market spot rents. Their acquisition of a major logistics portfolio in Australia recently was accretive to growth and diversifies their portfolio (asset base).
- Soilbuild Business Park REIT (SBREIT SP) has a well staggered lease expiry profile and reported steady occupancy rates across the portfolio. SBREIT’s portfolio is unique among its industrial peers as it is more focused on the business park space which has seen higher levels of demand from a broader range of tenants versus traditional industrial space. They have been focused on retaining tenants and forward renewing leases in view of the near term supply growth, as well as being active in pursuing acquisitions to complement their organic growth.
3. Office REITs are focusing their efforts on tenant retention as supply-demand risk persists and continue to put downward pressure on market rents. A recovery is expected in 2017 in light of an improved economic climate and a more benign supply outlook. We favour the REITs that have relatively more manageable lease expirations in the next couple of years.
- Capitaland Commercial Trust (CCT SP) reported rental reversions that were broadly positive, and their upcoming expiring rents look to still be under market spot rents. CCT have been proactive in renewing leases for 2016, and have the most manageable lease expiry profile among their peers. We continue to believe that it is one of the more resilient office REITS in Singapore for these reasons.