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CY2020 Review of Phillip SGX APAC Dividend Leaders REIT ETF

By February 3, 2021 March 30th, 2021 No Comments

CY2020 Review of Phillip SGX APAC Dividend Leaders REIT ETF

The COVID-19 pandemic has brought about massive market dislocations and uncertainties. REITs, as a whole, have shown resiliency in face of the pandemic in 2020. Our ETF that invests in regional REITs, the Phillip SGX APAC Dividend Leaders REIT ETF (“the Fund”) posted a Net Total Return (“NTR”) of -4.82% in the calendar year (“CY2020”) for its units that are trading in USD, versus the benchmark iEdge APAC Ex-Japan Dividend Leaders REIT (USD) index NTR of -1.82%. The Fund posted an NTR of -6.42% for its units that are trading in SGD.

By individual REIT markets, the Singapore Exchange (“SGX”) iEdge S-REIT index delivered a performance of -2.98%, while Australia Securities Exchange (“ASX”)200 A-REIT index was down -5.56% and Hang Seng (“HSI”) REIT index posted -13.46% in the comparable period.[1]  For this CY2020 review of Phillip SGX APAC Dividend Leaders REIT ETF, we look into the major property markets by allocation (Hong Kong and Australia) and offer our insights. For the review of the Singapore property market and the S-REIT space, please read the article titled “CY2020 Review of Phillip Singapore Real Estate Income Fund”.

Hong Kong Property Market

Chart 1: Property and Rental Price Indexes by TypesSource: Ratings and Valuation Department (“RVD”) of The Government of Hong Kong SAR; 1999 Base Reference Price = 100. Refer to Table 1 for full data and RVD for index methodology

The Hong Kong Property Market is impacted more severely in recent quarters, plagued by social unrest in 2019 and the pandemic in 2020. Property and rental prices in Hong Kong had been trickling down more disproportionately compared to others in the region.  This phenomenon is also reflected in Hong Kong REITs underperformance relative to peers in the APAC region.

Figures from the RVD as of 3Q2020 showed that private offices saw prices plunged 11.65% since the start of the pandemic year, while the private retail space prices were more resilient and in fact risen marginally by 0.73%. On the rental aspect, Hong Kong saw rental rates declined 8% in the office space and 7% in the retail space. Consequently, property market yield for Grade A Office rose 0.3 percentage points from end of 4Q2019 to 2.9% per annum (“p.a.”) at end of 3Q2020. At the same time, the property market yield for retail properties declined slightly by 0.1 percentage points to 2.6% (see Chart 1 and Table 1).

Compared to Singapore that sped up the rollout of the vaccines, Hong Kong’s delay in its vaccination would act as potential headwinds for its economy to put downward pressure on property rent rates and prices in the near-term. However, a limited new supply added through in 2020 should help in alleviating the dynamics in Hong Kong’s property market (see Table 1A and 1B).

With the rest of the world’s economy faltering into recessions, Hong Kong may lean into China which is largely expected to churn positive gross domestic product (“GDP”) growth forecasted to come in at 2.1% for 2020. In our view, having past the peak of the National Security Law implementation period, a “China hinterland” could be a significant driver in Hong Kong economic recovery.

As global aviation ground to a halt last year, Hong Kong saw inbound tourist figures plunged 94% from the start to November 2020. Pre-pandemic, Chinese visitors made up more than 78% of total inbound numbers in 2019, where total tourism expenditure receipts associated with all inbound tourists amounting to HK$256.2 billion. As such, the return of Mainland Chinese visitors would be a critical driver to watch for.

Table 1: Property Price and Rental Price Indices for Office and Retail Space (Overall)

Table 1A: Completions of Office Properties in Hong Kong by Grade

Table 1B: Completions, Stock, Vacancy of Retail Properties in Hong KongTable 1A,1B Source: RVD; in meter square
#Provisional figures (up to 30.11.2020)

Australia Property Market

Over in Australia, the COVID-19 pandemic similarly accelerated the de-rating of malls and offices for most of 2020. However, our research from various industry sources seems to suggest some indications that the Australia property market is rebounding amidst a more hopeful outlook in 2021.

Chart 2: Asking Price Index (“API”) of Rent by TypesSource: Phillip Capital Management (“PCM”); data from Commercial Property Guide (Australia). Refer to Table 2 for full data

The API by Commercial Property Guide (Australia) tracks the monthly change in vendor sentiment in rental properties in Australia. It represents the industry’s opinion and hence a forward-looking indicator to the future direction of Australia’s commercial real estate price movements. From Chart 2, API for rental rates for Australia’s retail and office sectors have rebounded and trended higher since August 2020. Meanwhile, the industrial sector had remained largely flat, largely due to the resilience of the sector despite the pandemic.

Chart 3: Year-on-year change in searches for properties for lease (commercial)

Source: realcommercial.com.au; week ending as of 24 January 2021.

In the office sector, industry sources (Chart 3) also showed that recent weekly searches for lease have been spiking, corresponding with our view that demand for office space in Australia is likely to be recovering. We believe this is led by greater expectations for increased workplace ratios owing to the vaccine roll-outs.

Another positive indication is drawn from Australia’s residential market: As of the end of September 2020, home prices in 8 major cities in Australia soared 4.5% on a weighted average basis, compared to a year ago. A buoyant residential demand is typically suggestive of strong consumer sentiments. We expect the recovery in consumption spending would lead translate to net absorptions for other property types down the road.

Table 2: Asking Price Index (“API”) of Rent by TypeSource: Refer to commercialpropertyguide.com.au/resources/cpg-ai/ for information about the index

Table 3: Residential Property Price Indexes: Eight Capital CitiesSource: Australia Bureau of Statistics; as of end of September 2020

Updates on Phillip SGX APAC Dividend Leaders REIT ETF

Chart 4: Portfolio AllocationSource: PCM; as of 31 December 2020

Compared to 1H2020, Phillip SGX APAC Divdend Leaders REIT ETF ended CY2020 with higher allocation in Australia at 55.8% [+5.3%], whilst lower allocation in Singapore at 28.6% [-6.2%], Hong Kong at  12.7% [-0.4%] and Thailand at 0.9% [-0.4%]. Sectorally, the Fund increased its allocation into Retail to 38.7% [+1.7%], Diversified REITs to 24.6% [+1.8%], Hospitality to 2.0% [+0.3%] and Others to 2.4% [0.9%], while allocation into Industrial sector was trimmed to 18.3% [-4.0%] and Office sector to 12.0% [-2.4%].

Dividend-wise, Phillip SGX APAC Dividend Leaders REIT ETF’s rolling 12-month distribution was US$0.0273 per unit for CY2020. Based on the NAV per unit of US$1.036 as of 31 December 2020, the trailing 12-month dividend yield would work out to be around 2.64%.

Table 4: Constituents MetricsSource: PCM; Bloomberg as of 31 December 2020. 

[1] Source: S&P Global Indices, Hang Seng Indexes, Singapore Exchange (respectively)

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