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CY2020 Review of Phillip Singapore Real Estate Income Fund

By February 22, 2021 No Comments

CY2020 Review of Phillip Singapore Real Estate Income Fund

In face of one of the worst years for Singapore equities in the year 2020 (“CY2020”), S-REITs emerged with highly resilient performance.  Along with consensus earnings being slashed, the local bourse ended the year being one of the region’s worst performers, with the Straits Times Index (“STI”) posting a Net Total Return (“NTR”) of -8.1%. When compared to the STI, S-REITs’ performance would be highly respectable, with the SGX iEdge S-REIT NTR index returning -2.98% during the same comparable period.

During the time, our active S-REIT fund Phillip Singapore Real Estate Income Fund (“PSREIF”) delivered an NTR of -5.39%, underperforming the SGX iEdge S-REIT NTR benchmark index. The underperformance can be attributed to underweight towards the Industrial REITs segment relative to the index, as well as cash drag due to fund inflows. For the year, asset-under-management (“AUM”) of PSREIF grew 8.5% to close at $61.6 million, representing a net inflow of $7.9 million.

Dividend-wise, PSREIF announced a $0.014 distribution payout per unit on 6 January 2021, to bring the rolling twelve-month distribution to $0.0675 per unit. At the Net Asset Value of $1.3041 as of 31 December 2020, the trailing twelve-month dividend yield would work out to be 5.17%.

Singapore Property Market Outlook in 2021

The early stringent containment measures implemented by the Singapore Government last year, though a tough pill to swallow, had turned out to be a strategic success in stamping out local infection rate. Coupled with the early adoption and rollout of the vaccines by the Singapore Government, as well as the Phase 3 reopening that only went into effet end-December last year, we expect to see continued economic momentum domestically.

On the macro level, policies – both fiscal and monetary – are expected to remain supportive to sustain the economic recovery that is underway. Meanwhile, a concerted fiscal injection by governments around the world would also benefit export-oriented economies like Singapore. Combining these favourable conditions with the undemanding valuations and compelling dividend yields of S-REITs in circumspect to the low-interest rate environment, valuations of S-REITs have room to re-rate higher.

That said, the recovery of S-REITs will also be met with some headwinds, along with the uncertainties of how the pandemic could transpire. Even then, across the S-REIT sectors, recovery will not be even. This due to the much larger pipeline of new supply that will be added into the mix across the sectors in 2021 compared to 2020.

On the whole, we are overweight in the retail sector to ride on the recovery of discretionary spending by consumers, as well as the industrial sector due to the tightening demand-supply dynamics. On the other hand, we are underweight on the office and hospitality sectors due to significantly larger new supplies, high vacancy rates and uncertainties relating to when a higher level of business or travel activities would resume.

Particular to the office sector, the pandemic has driven companies to rethink the traditional office space usage and fostered a shift towards more flexible work arrangements. In our view, we see such a trend would add contractionary pressures to office space over the longer-term.

Chart 1: Property and Rental Price Index of Office and Retail Space in the Central Region

Source: Urban Redevelopment Authority (“URA”); as of 3Q2020. Base index reference at 4Q/1998 = 100
Refer to Table 1 in Appendix for full data

Office & Retail: Latest available figures from the URA showed that property prices of office and retail spaces fell 7.9% and 2.5% respectively in the period of end 4Q2019 to 3Q2020. Meanwhile, rental prices of office space fell 5.2% while rental prices of retail fell more significantly by 10% in the same period.

The downward drift in property and rental prices corresponded in a period that saw vacancy rates in both the office and retail space rise significantly countrywide. As of 3Q2020, the vacancy rate of office space rose to 12.0% from 10.5% as of end 4Q2019. Meanwhile, the vacancy rate of retail space rose to 9.6% from 7.5% in the same period (see Table 2).

Looking into the supply pipeline (see Table 3), the low new supply added in CY2020 for both office space (2,000 sqm gross) and retail space (7,000 sqm gross) should help to hasten recovery early in CY2021, along with the Phase 3 reopening of the domestic economy. However, we see the impending huge new supply coming in this year for retail space (9,600 sqm) and more so for office space (191,000 sqm), may pose a drag on property prices and rental rates (see Table 3).

Chart 2: Hotel Statistics: RevPar and AOR Trend

Source: Singapore Tourism Analytics Network by Singapore Tourism Board; as of November 2020
Refer to Table 4 for full data

Hospitality: Over in the hospitality sector, figures from Singapore Tourism Board revealed that Revenue Per Available Room (“RevPar”) to have recovered from the low of $32.3 in May 2020 to $77.8 as of November 2020. Average Occupancy Rate (“AOR”) had also improved dramatically from the lows of 39.6% in March 2020 to 53.8% in November 2020 (see Table 4).

In the short-term, the hospitality REIT sector would benefit from the Singapore Government’s $320 million “Singapore Rediscover” campaign that was launched in December last year. Each Singaporean is entitled to a $100 voucher which can be spent at Singapore attractions or overnight stays in hotels. Overall, we view this stimulus favourably as it would achieve some multiplying effect by inducing locals to channel their unused holiday budgets to support local business.

However, with the campaign ending in June 2021, uncertainties remain to whether if the tourism would restart. Furthermore, the impending new supply to come on stream is also significantly larger this year at 1,691 rooms versus 192 last year. As such, while we see some scope of tactical positioning for recovery plays, we also see some headwinds to return (see Table 5).

Chart 3:&4 Property Price and Rental Index for Industrial Properties

Source: Jurong Town Council (“JTC”); Base index reference 2012Q2 = 100
Refer to JTC for information on indices data coverage and methodology

Industrial Properties: Figures from JTC showed that industrial properties as a whole were more resilient compared to Office, Retail and Hospitality sectors during the peak of the pandemic. The decline in both property prices and rental prices were significantly less pronounced.

As a whole, industrial properties saw prices declined 3.6% for the first 3 quarters of 2020. On the rental aspect, industrial properties saw rental prices fell by 1.64% overall in the same period. Amongst which, the business parks sub-segment saw the lowest decline, with rental rates falling just 1.06%. This is followed by warehouses’ -1.53%, single-user factories’ -1.96% and lastly multiple user factories’ -2.02%. From the data, it can be seen that high-spec business parks and single-user factories (especially for built-to-suit cases) are more resilient to displacement due to limited alternatives.

The industrial property market is the only sector to register a higher occupancy rate for the 3 quarters of 2020. Overall, the sector saw occupancy rate gain 0.4 percentage points from the end 4Q2019 to 89.6% as of 3Q2020. All sub-segments registered gains in occupancy in the period, revealing that demand for industrial space has stayed quite healthy.

Nonetheless, we are cognitive about the impending new supply expected to come on stream for the industrial space as well. In 2021, figures from JTC showed that about 2.2 million sqm of the new industrial stock is expected to be added into the 5.2 million sqm of vacant stock compared to 0.59 million sqm in 2020. Nonetheless, we are not too concerned, given how the sector has been tightening again since 2017 (see Table 6&7).

Updates on Phillip Singapore Real Estate Income Fund

Chart 5: Portfolio Allocation

Source: Phillip Capital Management; Bloomberg; Singapore Exchange data as of 31 December 2020

As of end CY2020, PSREIF’s allocation is as follows  (compared to our last review in 1H2020):

  • Industrial – 31.3% (-0.5%)
  • Retail – 33.5% (+11.8%)
  • Office – 7.4% (-6.8%)
  • Diversified – 9.0% (-0.5%)
  • Hospitality – 5.6% (+3.2%)
  • Specialised – 3.9% (-2.7%)
  • Healthcare – 2.5% (0.1%)

PSREIF’s allocation in the industrial (-0.5%), diversified (-0.5%) and healthcare (-0.1%) sectors were largely unchanged while we have reduced our exposure in office (-6.8%) and specialized S-REITs (-2.7%). We have rotated more into retail (+11.8%) and increased our slim exposure to the hospitality (+3.2%) S-REITs for tactical positioning.


APPENDIX

Important Information


This material and information herein is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation to invest in the fund(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. The information is subject to change at any time without notice. The value of the units and the income accruing to the units may fall or rise. You should read the relevant prospectus and the accompanying product highlights sheet (“PHS”) for disclosure of key features, key risks and other important information of the relevant fund (s) and obtain advice from a financial adviser (“FA”) before making a commitment to invest in the fund(s). In the event that you choose not to obtain advice from a FA, you should assess whether the fund(s) is/are suitable for you before proceeding to invest. A copy of the prospectus and PHS are available from PCM or any of its authorized distributors. Investments are subject to investment risks including the possible loss of the principal amount invested. Past performance is not necessarily indicative of the future or likely performance of the fund(s). There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. Investments in the fund(s) managed by PCM are not obligations of, deposits in, or guaranteed by PCM or any of its affiliates. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the investments mentioned herein or related thereto. This publication and Information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The fund(s) is/are not offered to U.S. Persons. The regular dividend distributions, where applicable, are paid either out of income and/or capital, not guaranteed and are subject to PCM’s discretion. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the fund(s). Past payout yields (rates) and payments do not represent future payout yields (rates) and payments. Please refer to for more information in relation to the dividend distributions. The information provided herein is based on certain information, conditions and/or assumptions available as at the date of this publication that may be obtained, provided or compiled from public and/or third party sources which PCM has no reason to believe are unreliable; and may contain optimistic statements/opinions/views regarding future events or future financial performance of countries, markets or companies. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. You must make your own financial assessment of the relevance, accuracy and adequacy of the information in this material. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss or consequences arising whether directly or indirectly as a result of your acting based on the information in this material. The information does not constitute, and should not be used as a substitute for, tax, legal or investment advice. The information should not be relied upon exclusively or as authoritative without further being subject to your own independent verification and exercise of judgement. This material has not been reviewed by The Monetary Authority of Singapore.

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FATCA NOTICE

With effect from 1st July 2014, this FATCA Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”) and should be read in conjunction with those Terms and Conditions, including those under our Personal Data Protection Notice.The existing terms and conditions of any contractual agreement entered into between PCM a nd you (the “Existing Terms and Conditions”) remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments,industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at http://www.phillipfunds.com/ .

On March 18, 2010, the United States of America’s (“U.S.”) Hiring Incentives to Restore Employment Act of 2010 (Pub.L.111-147H.R.2847)) (the “Act”) was enacted into law. Section 501(a) of the Act added a new chapter 4 (sections 1471-1474) to Subtitle A of the U.S.’s Internal Revenue Code (Code).Chapter 4 expands the information reporting requirements imposed on foreign financial institutions (as defined in section 1471(d)(4)) (FFIs) with respect to certain U.S. accounts (as defined in section 1471(d)(1)) of specified U.S. person, and imposes withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.

PCM will be obliged to comply with the provisions of FATCA under the terms of the inter-governmental agreement (“IGA”) Model I between the U.S. and Singapore and under the terms of Singapore’s subsidiary legislation which will be issued pursuant to Singapore's Income Tax Act (Cap. 134) to implement the IGA. “FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S. Internal Revenue Code.

“FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S.Internal Revenue Code.

“U.S. person” means a U.S. citizen or resident individual, a partnership or corporation organised in the U.S. or under the laws of the U.S. or any state of the U.S. thereof, a trust if: (i) a court within the U.S.would have authority under the applicable law to render orders or judgments concerning substantially all issues regarding the administration of the trust; and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the U.S..This definition shall be interpreted in accordance with the provisions of the U.S. Internal Revenue Code.

  • You shall provide all required documentation or information, including but not limited to your date of birth, countries of citizenship, countries of permanent residence, countries of tax residency and associated taxpayer identification numbers, which may be required to enable PCM to ascertain your U.S. tax status and share information and /or documents relating to you and/or your account(s) with domestic and international authorities for the purpose of complying with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations.
  • You represent and warrant that you have provided to PCM all documentation or information in relation to change in your tax status or as required by PCM for compliance with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations. You shall provide all required documentation or information within seven (7) days of a request from PCM in writing or otherwise.
  • You shall notify PCM in writing immediately in the event of any change that affects your tax status for the purpose of complying with the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations. Such change that affects your tax status may include any change of the country or territory of your domicile or residence or any change of your nationality or obtaining of any new nationality. In these instances, you shall provide all information and/or documents as required or requested by PCM.
  • You acknowledge and agree that when you fail to provide accurate and timely information pursuant to this Notice, for the purpose of complying with the FATCA, the IGA between Singapore and U.S or other countries, any applicable Singapore or international laws or regulations, PCM may deem you as a recalcitrant and/or a reportable person and report this information to the Singapore Inland Revenue Authority, in accordance with applicable laws and regulations, which will in turn report to the IRS.
  • It is the existing policy of PCM that investment products and investment accounts managed by PCM (“PCM Products and Services”) are not being offered or sold to U.S. Persons and that subsequent transfer of PCM Products and/or Services to a U.S.Persons are prohibited.
  • If investment accounts or products managed by PCM are beneficially owned by a U.S. Person or if PCM deemed you as a recalcitrant and/or a reportable person,PCM may compulsorily cancel your pending subscription order or capital injection,terminate the contractual relationship with you and withhold an amount for transferring to the relevant tax authorities as required under the FATCA, the IGA between Singapore and U.S or other countries, any applicable Singapore or international laws or regulations. PCM shall have no liability for losses,fees, costs, expense, damages, liabilities of any kind which you may have suffered in connection with such cancellation, termination, withholding amount and/or as a result of our complying with the requirements of FATCA, the IGA between Singapore and U.S or othercountries,any applicable Singapore or international laws or regulations,even if we make an incorrect assessment and decision.

PDPA

PERSONAL DATA PROTECTION NOTICE

With effect from 1st July 2014, this Personal Data Protection Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”). Without prejudice to the existing terms and conditions of any contractual agreement entered into between PCM and you (the “Existing Terms and Conditions”), which remain in full force and effect, this Notice shall be read in conjunction with the Existing Terms and Conditions. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We are required under the Personal Data Protection Act (“PDPA”) to put in place the necessary arrangements to protect personal data and comply with the PDPA. Personal data includes any data and information, whether true or not, about an individual (a natural person) who can be identified from that data or information, such as your name, NRIC, passport or other identification number, telephone numbers, address, email address and any other information relating to individuals which you or your authorized representative have provided to us or we are likely to have access to (“Personal Data”).

This Notice outlines the purposes for the collection, use and/or disclosure of your Personal Data by PCM, how we protect your Personal Data and your rights with respect to the collection, use and/or disclosure of your Personal Data. This Notice supplements but does not supersede nor replace any other consents which you may have previously provided to us in respect of your Personal Data, and your consents herein are additional to any rights which we may have at law to collect, use and/or disclose your Personal Data. We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments, industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at http://www.phillipfunds.com/.

1. PCM may collect, use and/or disclose your personal data for any of the following purposes listed below (collectively “Permitted Purposes”):-

i) carrying out activities, duties and obligations in connection with our products and services which you have applied for, including evaluating your eligibility and credit profile, verifying the identity or authority of your representatives, administration of your account and/or managing our overall relationship with you (including but not limited to the outsourcing of any of our functions to service providers or vendors, due diligence checks, accounting and portfolio valuation, billing and collections, business continuity and print management);

(ii) developing new services and/or products;

(iii) providing you with marketing, advertising and promotional information, materials and/or documents related to financial products and/or services that we may be selling, marketing, offering or promoting, whether such financial products or services exist now or are created in the future;

(iv) marketing and promotional events, including but not limited to images, photographs or videos of you during the events;

(v) meeting or complying with PCM’s internal policies and procedures and any applicable rules, law, regulations, codes of practice or guidelines, orders or requests issued by any court, legal or regulatory bodies (both national and international) (including but not limited to disclosures to regulatory authorities or financial industry self-regulatory bodies; conducting audit checks (internal/external), surveillance and investigation; handling of customer feedback or complaint; dispute resolutions; recording of telephone conversations and/or electronic communications with you; conducting checks or investigations for prevention and/or detection of financial crimes such as money-laundering, financing of terrorism, fraud and/or bribery etc.);

(vi) legal purposes, including but not limited to obtaining legal advice and enforcing or defending our legal and/or contractual rights against you;

(vii) risk management, statistical and trend analysis;

(viii) processing and/or storing data and/or information related to your relationship with PCM.

2. PCM, in order to facilitate the discharge of its duties and obligations to you, may be required to disclose your Personal Data for the Permitted Purposes and/or for processing of the Permitted Purposes on a need-to-know basis, to any of the following entities and the directors, officers, staff, employees and agents of any such entities, whether located within or outside Singapore (“Relevant Persons”):-

(i) any associate or related company of PCM and the directors, officers, staff, employees and agents of any such person;

(ii) any actual or proposed assignee or transferee of any of PCM’s rights and obligations or any actual or proposed delegate of any of PCM’s functions and duties under its contractual relationship with you;

(iii) any relevant governmental, supervisory or regulatory authority or court of law, including the Monetary Authority of Singapore, to which PCM is or may be subject;

(ix) any person in order to give effect to any instruction from you or any person acting or purporting to be acting on behalf of you;

(x) any person as PCM may consider necessary in order to comply with any order, directive or policy of any court or governmental or regulatory authority in any jurisdiction;

(xi) any person when required to do so in accordance with the laws of any applicable jurisdiction or rules of any professional self-regulatory bodies or securities exchanges;

(xii) any agent, contractor or third party service provider who provides their services in connection with the operation of PCM’s fund management business, including but not limited to the custodians, trustees, fund administrators, registrars, banks, legal firms, accounting and auditing firms, printing firms, IT service providers, credit reference agencies, credit bureaus, data screening entities for the purpose of due diligence checks and the prevention and detection of financial crimes.

3. PCM’s related companies and third party service providers shall be bound by the same provisions as set out in this Notice and we will require them to ensure that your Personal Data are kept confidential and secure.

4. You represent and warrant that your Personal Data provided to us is accurate and complete for us to make a decision that affects you or to disclose your Personal Data to the above-mentioned Relevant Persons on a need-to-know basis. Where applicable, when you provided Personal Data relating to another individual (e.g. your dependent, spouse, children and/or parents) to us, you represent and warrant that such Personal Data is accurate and complete and the consent of that individual has been obtained for the collection, use and disclosure of his/her Personal Data in accordance with the provisions listed in this Notice.

5. We will retain your Personal Data to the extent that one or more of the Purposes for which your Personal Data was collected, used and/or disclosed is/are still valid and for legal, regulatory reporting or regulatory investigations purposes for which retention may be necessary.

6. PCM may terminate any contractual relationship which you may have with us, if any information provided to us is insufficient, misleading or erroneous or if any information that is required to be disclosed to any regulatory authority for compliance with any law or regulation is not provided by you.

7. You may request access to or make corrections to your Personal Data records. Depending on the information requested PCM may charge a small fee when you request access to your Personal Data. Upon your request and subject to the provisions under the PDPA, PCM will respond accordingly within reasonably possible time. Please submit your request to our Data Protection Officer via pcm@phillip.com.sg.

8. You may withdraw your consent to any use or disclosure of your Personal Data for any or all of the Purposes as set out in this Notice by giving written notice to us. If you withdraw your consent(s), depending on the nature of your request, we may not be in a position to continue to provide our products or services to you or administer any contractual relationship in place. Such withdrawal may be considered a termination by you of any agreement you may have with us. Where there is any breach of your contractual obligations or undertakings, PCM’s legal rights and remedies are expressly reserved in such event.