Singapore property intelligence report

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Property singapore

The following is an excerpt from JP Morgan’s daily property intelligence report covering key developments in the property market.

HEADLINES

The Competition & Consumer Commission of Singapore (CCCS) has issued a proposed infringement decision (PID) against the owners and operators of certain hotels in Singapore, in relation to the alleged discussion and exchange of confidential, customer-specific and commercially sensitive information (in connection with the provision of hotel room accommodation in Singapore to corporate customers) with intention to reduce competitive pressures on prices and contract terms.

The infringement took place before 30-Jun-15 and the parties have six weeks from 2-Aug-18 to respond to CCCS on the PID.

According to Bloomberg, the hotel owners/operators include Ascendas Frasers, Frasers Hospitality Trustee, Far East Organization Centre, Far East Hospitality Management (S), OUE Airport Hotel and Inter-Continental Hotels (Singapore).

The hotels include Capri by Fraser Changi City Singapore, Village Hotel Changi, Village Hotel Katong, Crowne Plaza Changi Airport Hotel and Intercontinental Hotel. (Source: Frasers Property Limited, Far East Orchard, The Business Times, The Straits Times and Bloomberg)




Ascendas REIT (AREIT) has acquired Cargo Business Park at 56 Lavarack Avenue in Trade Coast, Brisbane, Australia for A$33.5m (S$33.9m), which translates to A$4,077 psm on GLA of 8,216 sqm.

Although the property is 87.4% occupied to a few reputable tenants (including Commonwealth of Australia, Asics and Nike), the vendor – TS1 (Qld) will provide a 12-mth rental guarantee for the vacant spaces.

NPI yield works out to 7.4/6.8% pre/post transaction costs with annual rent escalations of 3-4%, while management expects it to be DPU accretive assuming 60:40% funded by debt:equity.

Comprising one 4-storey and two 3-storey buildings, the 12-yr-old logistics property enjoys healthy retention rate of 78% and WALE of 2.6 years. It is 9km Northeast of Brisbane CBD, as well as 6km from Brisbane Domestic and International Airport. (Source: Ascendas REIT)

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Keppel Capital Holdings (KCH) has paid US$77.3m to acquire a 50% equity stake in Watermark Retirement Communities (WRC), 50% equity stake in certain affiliates of WRC and 50% interest in WRC Office Building.

With total AUM of US$2.7b, WRC is a leading senior living operator in the US with development capabilities and currently managing 52 senior housing communities (~9,400 beds) in 21 states, in addition to another six communities under development. WRC’s senior housing communities offer a variety of services comprising independent living, assisted living, memory care and skilled nursing.

WRC operates on three different business approaches, namely to be engaged as an operator, leasing of property to operate facilities or JV with capital partners to acquire/develop a community or portfolio of communities.

KCH has identified senior living as a new alternative asset class in view of aging demographics, growing acceptance and shrinking family support.

KCH may raise funds to serve as capital partner for new projects by WRC going forward, hence offering more options to its investors, as well as providing another avenue of growing AUM and management fees. (Source: Keppel Corporation)

According to The Business Times, CapitaLand Commercial Trust (CCT) may lease space in Asia Square Tower 2 to The Work Project, which is a co-working operator.

Despite market watchers predicting consolidation in the co-working space sector in Singapore, more new operators are entering and existing ones are expanding.

YTD, co-working operators took up 27% of total office space vs. 1% in 2014.

Co-working operators could occupy 2.2% of private-sector office stock by end-2018, vs. 0.5% in end-2015.

In the past, office landlords would grant exclusivity to a co-working or serviced-office operator in one building, but Suntec City Office (with Centennial, Regus, Servcorp, Ucommune and WeWork ) has shown that several different operators could function simultaneously.

Profiles of co-working space users have changed from just SMEs, freelancers and mum-preneurs to MNCs.

More co-working space operators (such as Alibaba-backed Kr Space and Hong Kong’s Campfire) could expand into Singapore, following the trend of existing domestic names (JustCo, The Great Room and The Working Capitol) and foreign firms (WeWork, Ucommune and Distrii).

Interestingly, JustCo will be the first co-working space operator to set up its operations in hotels, where it will use Hotel Jen’s (owned by Shangri-La Hotels) business centre to expand to new locations.

The group plans to spend over US$100m to add 100 locations in 13 Asian markets by 2020, after recently gathering funds from Frasers Property Limited, GIC and Sansiri. (Source: The Business Times and Bloomberg)




CORPORATE NEWS

OUE Commercial REIT’s (OUECT) 2Q18 DPU falls 7.8% YoY to 1.06 Scts due to lower revenues (-2.6% to S$43m) from transitional vacancy at One Raffles Place shopping mall from the departure of an anchor tenant and higher interest expenses (+14.8%) from a rise in borrowings.

The retail vacancy has been committed to a new tenant which is expected to commence operations in early 2019.

OUE Bayfront achieved positive rental reversions in 2Q18 while the rental gap between expiring office rents (S$10.66 psf) and market rents (S$10.10 psf) continue to narrow at One Raffles Place.

Aggregate leverage was at 40.3%, with average cost of debt at 3.5% p.a. OUECT has declined 4.2% YTD outperforming S-REITs (-5.6%).

It is trading at consensus FY18/19 yield of 6.5/6.4% and P/B of 0.75x. (Source: OUE Commercial REIT and Bloomberg)

Ascendas Hospitality Trust’s (ASCHT) 1QFY19 DPU rises 3.1% to 1.35 Scts due to the partial distribution of proceeds from the divestment of two hotels in Beijing and lower net finance costs.

Revenues/NPI fell 9.8/9.3% due to weaker performance from Australia and the impact of the divestments in China, exacerbated by the weakening of the JPY (-2.7%) and AUD (-3.4%).

RevPARs fell both in Australia (-3.5%) and Japan (-0.3%) but grew in Korea (+24.4%) and Singapore (+4.4%) at the Park Hotel Clarke Quay. Management expects the market to stay competitive in Sydney, while in Japan, the impact of the earthquake in Osaka and the adverse weather conditions could dampen travel sentiment.

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Singapore is expected to recover on the back of a tapering hotel supply and growth (+7.6%) in tourist arrivals. ASCHT is down 5.8% YTD, underperforming S-REITs (-5.6%).

It is trading at P/B of 0.80x and consensus FY19/20 yield of 7.2/7.4%. (Source: Ascendas Hospitality Trust, Bloomberg)




Lippo Malls Indonesia Retail Trust’s (LMRT) 2Q18 DPU plunged 34.4% to 0.59 Scts (-11.9% QoQ), with performance impacted by a 9.7% YoY weakening of the IDR against the SGD and a tripling of property expenses from S$3.1m to S$9.5m due to the termination of outsourced maintenance services for five malls.

A 10% income tax on outsourced service charges and utilities recoveries charges also raised tax expense by 46% to S$7.6m from S$5.2m.

Revenues rose 5.5% to S$53m following the acquisition of three malls in 2017, offset against the non-renewal of master leases at seven retail spaces.

NPI fell 7.8% to S$43m due to higher property expenses. LMRT has fallen 21.3% YTD, underperforming S-REITs (-5.6%), and is trading at FY18/19 consensus yield of 8.3% and P/B of 1.05x. (Source: Lippo Malls Indonesia Retail Trust, Bloomberg)

RHT Health Trust’s (RHT) 1QFY19 DPU falls 18.0% to 1.00 Scts (-5.7% QoQ) due to an 8.8% fall in revenues from the depreciation of the INR against the SGD.

In INR terms, total revenue would have fallen 1.6%. All outstanding amounts from Fortis Healthcare had been received while progress is being made to complete the proposed disposal of assets to Fortis.

Due to the proposed disposal, RHT has not entered into any hedges for INR cashflow for FY19. RHT has declined 4.6% YTD, outperforming S-REITs (-5.6%) and is trading at consensus FY18/19 yield of 6.5/7.5% and P/B of 0.96x. (Source: RHT Health Trust, Bloomberg)

Far East Orchard’s (FEOR) 1Q18 net profit rises 44% to S$1.6m due to lower other losses (-31% to S$1.0m) from currency movements and higher contributions from associates (+80% to S$1.3m) from a one-off acquisition fee following the acquisition of Oasia Hotel Downtown by Far East Hospitality Trust (FEHT).

Revenues fell 0.6% to S$36m on weaker hospitality business in Perth and Melbourne.

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FEOR expects the near-term outlook for the Singapore hospitality sector to be positive, underpinned by limited new room supply and rising visitor arrivals although service residence demand is expected to lag as corporate long-stay demand remains soft. (Source: Far East Orchard)




Perennial Real Estate (PREH)’s 2Q18 net profit falls 49.5% to S$8.6m due to the absence of a one-off divestment gain from the partial divestment of the equity stake in TripleOne Somerset, lower fair value gain and higher finance costs.

Revenues rose 1.6% to S$18.1m with the consolidation of Capitol Singapore’s revenue, improved performance from Perennial Qingyang Mall and Perennial Jihua Mall and new contributions from Perennial International Health and Medical Hub which commenced operations in June 2018. (Source: Perennial Real Estate Holdings)

GS Holdings’ (GSHL) 1H18 net loss falls by 32% to S$1.2m from S$1.8m previously. Revenues rose 5% to S$5m due to additional contracts secured from F&B outlets in Changi Airport while cost of sales fell 2% on cost-control and efficiency improvements undertaken by the company. (Source: GS Holdings)

CSC Holdings’ (CSC) 1QFY19 net loss shrinks 17% to S$2.4m from S$2.9m previously. Revenues rose 5% to S$81m despite delays in the commencement of new projects secured. (Source: CSC Holdings)

Hock Lian Seng’s (HLHS) 1H18 net profit rises 88% to $4.4m due to a doubling of revenue to S$94.5m from higher construction activities for the JV Changi Airport project, while no revenues were recognized from property development.

HLHS has a construction order book of S$736m as at 2Q18, while its new industrial development [email protected] South was completed on 1 August. (Source: Hock Lian Seng Holdings)

Hearing for TT International’s second moratorium extension application fixed for 10 Aug 2018 in the High Court. (Source: TT International)

Mapletree Commercial Trust (MCT) has entered into a S$85m term loan facility. (Source: Mapletree Commercial Trust)

KSH Holdings awarded S$53.8m construction contract which is expected to commence in August 2018 with completion in 2020.

Including a letter of intent from KSH’s 35%-owned associate for a S$266.3m construction contract, the new contract will lift KSHH’s order book to over S$560m. (Source: KSH Holdings)




SECTOR NEWS

HDB resale prices fell 0.3% MoM (-1.6% YoY) in Jul-18, due to mature estates (-1%) more than offsetting non-mature estates (+0.3%). Volumes jumped 28% MoM (+43% YoY) to 2,548 units, but still 30% below its peak of 3,649 units in May-10. (Source: SRX Property and The Business Times)

Many retailers struggle to get their employees onboard as they embark on the digitalization transformation journey, as people (particularly older ones) tend to be less receptive of change. Internal trial and execution period could range from six months to one year before changes can be rolled out, as a result of the challenge of educating/re-training staff to use the new technology efficiently. Also, the poor perception of retail jobs is a common reason for resistance towards re-training, unless employee value proposition can be effectively increased. (Source: The Business Times)

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Japan Foods expects Singapore’s operating environment in the local food and beverage industry to remain challenging in the next 12 months, due to intense competition, tight labor supply, rising business costs and uncertain economic outlook. It recently secured the franchise rights of Konjiki Hototogisu (ramen brand) and Kagurazaka Saryo (tea and dessert) from Japan, whose first outlets were opened in CHIJMES and VivoCity, respectively. (Source: Japan Foods)

ECONOMY NEWS

Singapore’s PMI eases for fourth straight month dipping 0.2 pts to 52.3 in July although the index still remains in positive territory. The numbers reflected a slower growth in new orders, new exports, factory output and lower inventories. The electronics PMI also fell 0.3 pts to 51.6 on slower growth in new orders, new exports, inventory and factory output.


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