05/2019
The opening of Jewel in Changi is no jewel for Retail REIT investors. Increased retail space supply, the presence of e-commerce and slower economy has worried many analysts and fund managers in the last 5 years.
However, at GCP Global, we have advised our investor students (Over the past decade, we have educated more than 6,000 HNI and UHNI investors, boutique funds and Family Offices across Asia) to romance and invest in Retail REITS in early-2018. We continue to advocate a heavy positioning-into Retail REITS which have turned out to be very profitable for the Smart REIT investor.
Total return in the past 14 months for the 5 Retail REITS averaged 18% while Mapletree Commercial Trust, MCT reaped the Smart REIT investor a whopping 30.17% in just 14 months!
Performance of Retail REITS in 2018
Retail REITS took the Top Spot – Capitaland Mall Trust, CMT 2nd Best – Frasers Centrepoint Trust, FCT 4th Best – MCT and 6th Best – SPH REIT spots for the Top 10 Best Performing REITS in 2018.
So how did we continue to be so accurate in our predictions and calls?
1. Know the Key Profitability Dynamics Well
The Jewel was the main contributor in adding 1.10 million sq. ft of retail space in the current year. The 2 other major supply is the completion of the Funan in 2Q2019 and Paya Lebar Quarter, PLQ for the current year.
It is noteworthy that practically all retail space at Funan has been filled while close to 90% at PLQ has been pre-committed, according to the developer and owner, the Lendlease Group. Thus, this year’s supply has practically been taken up.
Projected supply for 2020 and 2021 will take a sharp plunge to 146,000 sq ft and 105,000 sq. ft respectively, according to CBRE. Compare this to the average absorption rate of 1.5 million sq. ft per year for the last 5 years, this is almost certainly going to move retail rentals upwards substantially.
2. Our Deep Dive Analysis in our REITS classes
A deep dive into the recent 1Q2019 results of Retail REITS revealed –
1. Practically all shopping malls owned by the 5 retail REITS (the other being Starhill Global REIT) continued to record and register positive NPI growth in the latest 1Q2019 results.
CMT
2. 2018 Top Performer – CMT showed why it was Top – with the exception of the Atrium Mall which showed a drop of NPI from $9.7 million to $9.4 million, all the other 14 shopping malls that it owned registered good positive NPI growth. In fact, CMT registered an astounding 11.5% growth in NPI in 1Q2019. It has been a long time since it last registered a double-digit NPI growth!
3. Moreover, the NPI uplift was broad-based with positive rental reversion of 1.2% on 336,000 sq. ft of leases renewed in 1Q2019. Even its most problematic mall in recent years, Bedok Mall managed a 1.5% positive rental revision! Only Raffles City saw negative rental revisions largely due to negative renewal of a fashion tenant.
4. Strong NPI growth were supported by both strong positive rental reversions and strong occupancies of 95.1% to 100% for its malls.
FCT
5. I have been FCT’s Top 20 Shareholder since its listing in 2006. I continue to be FCT’s Substantial Shareholder as listed in its Annual Report 2018 as I took the chance to add to my holdings at >$2.17 during the 26th Jan 2018 sell-off and the Nov 2018 sell-off. There are always pockets of opportunities to top-up your holdings at favorable prices. So, patience is Key for a Smart REIT investor.
6. FCT posted strong revenue growth of 2.3% and strong NPI growth of 4.8% in its latest quarterly results in 1Q2019. Portfolio occupancies took a slight dip from 96.4% to 96.0% as the food court at key asset, Causeway Point closed for renovation.
7. FCT enjoyed a commendable 1% - 6.2% increase in its latest reversionary in all its malls. Only 1 mall, namely, Changi City Point suffered a 5% drop in reversion rents. In fact, for the 1st-time in as many quarters, Bedok Point registered a positive rental reversion as occupancy climbed from 77.8% to 88.7%!
8. Like CMT, strong NPI growth at FCT were supported by both strong positive rental reversions and strong occupancies of 88.7% to 97.4% for its 6 malls.
MCT
9. MCT owns Vivo City, Vivo which has been chalking up impressive year-on-year rental growth since its opening in 2006. Vivo is the largest mall in Singapore will more than 1 million sq ft of NLA and one of a handful of destination malls which has been classified as a super-regional mall in view of its size, excellent transport connectivity and direct connection to Sentosa.
10. Not surprisingly, despite a slowdown in retail sales growth from 1.8% in 2017 to 1.1% in 2018, Vivo’s NPI continued to move up from $156.7 million in FY2018 (Ending 31st Mar) to $162.3 million in FY2019. Vivo continued to contribute to 46.7% of MCT’s NPI.
11. Vivo continued to enjoy its more than 10 consecutive quarterly positive growth reversionary rental with the latest up 3.5% for 1Q2019 on occupancy of 99.4%.
SPH REIT
12. SPH REIT’s 3 local assets, namely Paragon, Clementi Mall and The Rail Mall impressed with strong rental reversions of 5.0% - 6.2% in its latest quarterly. Particularly so was The Paragon which managed to turn around from its last few quarters of negative reversion. Paragon recorded positive rental reversion of 8.6% for new and renewed leases cumulatively YTD which represented 15.2% of its total NLA.
The latest set of quarterly results in 1Q2019 clearly underscored what we have been teaching for the past 3 decades – Buy and Position ahead of Major Changes Supply and its impact on reversion rentals and occupancies as we did in the Hospitality sector. This is an area of our expertise that we dice and slice, toss and answer in our Quarterly REITS and Master REITS classes.
Our next upcoming class is on Saturday 11 May 2019 https://gcpglobalsg.wixsite.com/gcpglobal/events-1/reits-quarterly-class-protecting-your-profits-in-your-reits-portfolio-after-a-good-run
Time & Location
11 May, 10:00 am – 2:00 pm
CGS-CIMB Securities (Singapore) Pte. Ltd, 50 Raffles Place, Singapore 048623
Do sign up as we will be covering the other topics like –
1. After a great run in prices, is it time to defend your REIT profits? And how to do it?
2. Industrial REITS had a scare with CWT International’s loan default – what are the other pitfalls that the Smart REIT investor should avoid?
3. The merger of OUE HT & OUE CT – A merger with minimal cost savings and synergies, but will it be a trend of sort to come? We forewarn you.
Like in all GCP Global events, we go in depth and analyze the deals so that you can get a steal ahead before the actual event hits investors in the pocket.
GCP Global recent videos with > 1,300 FB Reached, Engagements and Views –
Analyzing 2019 1ST REIT IPO – Buy at IPO or Wait to Buy below IPO price?
What’s Next for REITS after a stunning 1Q2019 performance?
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