This report is part of the Phillip 2018 Singapore Strategy Report.
2017 Review S-REITs put in a strong performance in 2017, gaining 25.2% (inclusive of dividends) as at end November, led by hospitality (29%) and office (23%) sectors. Worries at the start of the year about more rapid interest rate increases by the Fed crimping the performance of REITs proved unfounded. Low inflation and tepid interest rate increases ensured that S-REITs’ strong performance post-GFC continued. Furthermore, the SGD strength kept SOR rise in check for large parts of the year (Figure 55), while the competitive banking landscape resulted in thinning bank spreads. These kept borrowing costs for REITs at depressed levels despite three Fed rate hikes in 2017. Retail – Retail sales at malls continue to be sluggish (9M17 slightly negative to flat YoY), dragging down rental reversions to the near weakest levels post-GFC. Brick and mortar retail sales have generally not kept pace with the recovery in general retail sales index (9M17 +1.8% excl. Motor), suggesting some of the strength could be from non-brick and mortar related sales, e.g. petrol services, or online sales. Occupancy costs generally crept up with CMT (19%) and FCT (18%) looking at record high occupancy costs. Office – Peak supply in 2017 was the primary concern at the start of 2017, but we are experiencing a gradual absorption. Marina One pre-committed occupancy 70+%. As new supply was taken up, Grade A office rents have stabilised and rebounded in 3Q17 after falling 17% in nine consecutive quarters since 1Q15. 2017 also saw a record land price bid by Guocoland at S$1706/psf for Beach Road GLS commercial site. Hospitality – YTD17 saw tourist arrivals increase c.4%, much weaker than 2016’s 7.7%. Despite slower growth YoY vs 2016 (c.7.7%), hotel RevPAR managed to stabilise and clocked in four consecutive months of growth in September after 13 quarters of decline (Figure 60). Industry RevPAR at $215 is almost two-year highs. Outlook Inflation and interest rate hikes remain our key concerns for 2018. Market consensus now expects 2-3 interest rate hikes in 2018 and we believe further upward pressure on bond yields will come from intensifying Fed balance sheet tapering in 2018. As such, we remain cautious on the sector with a NEUTRAL rating. Sector yield spreads have dropped below post-GFC average (Figure 56). We remain selectively optimistic on the hospitality sector as we expect continued RevPAR strength on the back of various drivers elaborated below. Retail (Neutral) – Operating environment in malls to remain challenging as we expect Amazon and other e-commerce players to continue gaining popularity and acceptance, despite the possibility of an online sales tax which could level the playing field between online and offline retailers. The potential increase in GST as mooted by the government, if materialised, will be add a further headwind and dent consumption. High occupancy costs will impede landlords’ ability to raise rents. We expect retail rents to bottom only by 1H18 (Figure 57). Office (Neutral) – Supply of Grade A office space will taper off sharply after 2017, with an expected c.800k sqft coming on in 2018, lower than average net annual demand of 1170k sqft post-GFC. Along with improved demand for office space driven by recovering global economies, we expect continued strength in office rents. We expect Grade A office rents to grow 5-7% in 2018 (Figure 58). Hospitality (Overweight) – New room supply growth will wind down after 2017 with a 1.7% increase forecasted for 2018. We expect 2018 RevPAR to continue to improve because of 1) STB’s continued push to boost tourism in Singapore; 2) Return of biennial events in 2018 such as the Singapore Air Show; 3) Tapering hotel supply.
|
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
Dehong covers primarily the REITs and property developer sector. He has close to 7 years experience in equities related dealing and research roles.
He graduated with a Masters of Science in Applied Finance from SMU and Bachelors of Accountancy from NTU.
