With the 1Q17 quarterly reporting for Singapore-listed REITs more or less done, we resume our REITs report card series. We analysed the quarterly results of REIT sub-sectors and some notable REITs that have either done well or underperformed.
1. Industrial REITs
Source: Trading Economics
Singapore’s Purchasing Manager Index (PMI) has been recording an expansion for the eighth consecutive month. Apart from expanding consistently, economic indicators also point towards faster expansion in the manufacturing sector.
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This encouraging economic data is a positive sign for the industrial sector’s demand as industrial demand shows signs of picking up since the start of 2017. With the industrial REITs having suffered from an oversupply since 2014, the positive signs of pickup in industrial demand could reinvigorate interest in the industrial REITs.
Performance Grade For The Quarter: A
A-REIT managed to improve its gross revenue by 2.4 percent year-on-year, thanks to contribution from acquisitions in Singapore and Australia markets.
Its costs were also helped by lower utilities expenses and property taxes on its assets. These led a rise of 2.5 percent year-on-year of A-REIT’s DPU.
The pickup in demand for industrial space is a positive factor for A-REIT, especially in the business park space where oversupply is much less of a concern. A-REIT’s management has guided for more inorganic growth opportunities to boost returns in the near term through redevelopment or asset enhancing initiatives.
Performance Grade For The Quarter: A-
3. Hospitality REITs
If you have been at the Gardens By The Bay over the past week, you would have seen the Star Wars themed festival, together with the Star Wars run that was held.
The Star Wars event is part of Singapore’s 3-year collaboration with Walt Disney to re-inject vibrancy into Singapore’s tourism sector through experiential attractions. The Singapore Tourism Board has also incorporated plans to revitalise Orchard Road back to its glory days as the location where Singaporeans congregate.
The hospitality industry has been building up a lot of valuable data that is waiting to be unearthed. As part of the Singapore Tourism Board’s initiative to kickstart Singapore’s hospitality scene, it is looking to leverage on these data to help hospitality providers better understand its target audience.
While the execution is still underway, the general direction that Singapore Tourism Board has taken point towards a rosier future for the hospitality sectors. The hospitality REITs are one of the biggest beneficiaries from Singapore Tourism Board’s initiatives, if it yields the result that is has been forecast.
Performance Grade For The Quarter: A
4. OUE Hospitality REIT
The hospitality sector hasn’t been having the best of results in recent quarters. Yet, OUE Hospitality REIT managed to recover its 1Q17 DPU.
1Q17 DPU grew by 18 percent year-on-year, which was much better than what the street had anticipated. The stronger than expected performance was attributable to the Crowne Plaza Changi Airport extension and opening of Michael Kors and Victoria’s Secret stores in 4Q16, which led to higher net property income.
It was also helped by the low base effect as a result of the rights issue in 1H17. Another contributing factor to the improvement in net property income was the recovery of Mandarin Gallery as occupancy improved from 82.9 percent to 94.7 percent.
Performance Grade For The Quarter: A+
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