Phillip Singapore Real Estate Income Fund - Phillip Capital ...
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JUNE 2019
Phillip Singapore
Real Estate Income Fund
Commentary Review for YTD period
• Quarterly review ending 31 May 2019
by Sabrina Loh, Investment Director,
Phillip Capital Management
Overall, the total YTD return for the Phillip Singapore
Real Estate Income Fund (“the fund”) was +12.7%
(net of fees and withholding tax) as of 31 May 2019.
The benchmark, SGX S-REIT Index was up +13.6%
over the comparable period. Singapore REIT markets
continued to see strength over the period on dovish
overtones from major central banks, which boosted
sentiment on high-yielding assets in general. Despite
volatility seen in the equities market over the same
period, Singapore REITs outperformed the local STI
index (FSSTI YTD +3.73%).
As of end-May, weighted average dividend yield of
the Fund was 5.2%.
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REITs listed in Singapore have continued to see resilience in the months of April and May. There
are two trends worth noting for REITs listed in Singapore. First, there is an industry consolidation,
where smaller REITs have been merging to achieve scale. For example, recent deals include ESR
REIT merging with Viva Industrial Trust, and the proposed merger of OUE Commercial REIT with
OUE Hospitality Trust. There are also talks surrounding the potential merger of Ascendas
Hospitality Trust and Ascott Residence Trust after Capitaland and Ascendas-Singbridge combined
into one entity. The second trend is the internationalisation of REITs listed in Singapore in two
ways: (1) existing REITs that invested primarily in Singapore have expanded their portfolio
geographical focus to include newer regions, such as Australia, Europe, Japan and even Korea; (2)
newer REIT offerings are coming onto the market that focus on investment destinations outside
of Singapore. For example, after the introduction of Manulife US REIT in 2016, Keppel-KBS US REIT
came in 2018, and in mid-2019, we saw the entrance of 3 new US-focused REITs (2 in US hotels, 1
in US office). We believe that while this is certainly good news for the exchange and the growth of
REITs listed in Singapore in general, we are inclined to be more cautious. However said, Ascendas
REIT buying into Australia in 2015 has been an exemplary example of accretive and well-timed
overseas diversification. Therefore, such a strategy can be advantageous for unitholders, if the
management executes well.
Overall, though valuations are no longer as compelling as before the rise in REIT prices, recent
drop in risk-free yields provides further favourable impetus. For example, 10-year Singapore
government bond yields have dropped to below 2.06% from their peak of above 2.6% in October
2018, and this means REITs listed in Singapore trading at 5% yield overall still retain a yield spread
of over 2.5% over the risk-free 10-year government bonds.
Given major REITs listed in Singapore, a regional financial centre and a gateway city, REITs market
in Singapore have been performing well. REITs markets are well regarded as value creators, and
this has helped to bolster appetite for such REITs through-cycle.
However, we also see an emerging tail risk in an escalating US-China trade and technology war. As
a high export and foreign-direct investment (FDI) dependent economy, we believe that Singapore
would be vulnerable to slowdowns to these critical indicators and Singapore’s REITs market would
not be immune since the direct fallout is likely to be a deterioration in real estate fundamentals.
By sector, our order of preference is as follows: hospitality/hotel, retail, office and industrial.
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H o s p i t a l it y
In Singapore, we particularly favour hospitality sector.
The sector’s above-average distribution per unit (DPU)
yields growth will be driven by the extremely tight
incoming supply of new hotel rooms (a 3-year compound
annual growth rate (CAGR) of 1.5%) for several years and
a gradual multi-year hotel revenue per available room
(RevPAR) recovery (potentially in the high single-digit
year-over-year (YoY) growth) that has been delayed to
2H19 will be driven by rising tourist arrivals.
Retail
We prefer retail-property S-REITs for their
inherent defensiveness in a recession and
potential to surprise on the upside on rental
reversions. Moreover, with likely limited
supply of new retail space island-wide from
2H19, we expect modest rental growth after
the new supply in 2018-19 has been absorbed
by the market.
Industrial
We see little attraction in the industrial-property S-REIT
sector as it recovers gradually from an oversupply of new
space in recent years. We believe a recovery in tenant
demand could be elusive if the US-China trade war
escalates and creates investment uncertainty. For
industrial-property S-REIT sector 2019 estimates DPU
yield of 5.5% is about 0.5 standard deviation (SD) below
its long-term (since mid-2004) average of 6.1%, while the
current sector yield spread of 3.3% is 30 bps below the
long-term sector yield spread of 3.6%. DPU yields were
lower in the pre-Global Financial Crisis (GFC) period, but
economic growth and DPU growth back then were much
stronger than now (and a prolonged US-China trade war
is likely to lower DPU forecasts further).
Office
We are negative on the office sector and
believe the strong rental recovery in 2018 and
YTD has been captured fully in the unit prices.
Regardless of the favourable supply demand
situation, lingering economic and investment
uncertainty in Singapore due to the ongoing
US-China trade war could cool off office-space
demand.
www.phillipfunds.com
Phillip Singapore Real Estate Income Fund
Returns Since Inception 1 month 3 months Year to Date
Fund (Class A SGD) 99.45% 0.56% 4.03% 12.45%
Benchmark 78.61% 0.27% 4.02% 14.43%
Annualised Returns 1 Year 3 Years 5 Years Since Inception
Fund (Class A SGD) 9.05% 9.24% 6.22% 9.38%
Benchmark 15.22% 13.53% 6.84% 7.82%
Ex-Date Payment Date Payout/Unit Ann.Yield
1 Oct 2018 12 Oct 2018 S$0.018 5.45%
2 Jan 2019 12 Jan 2019 S$0.013 5.33%
29 Mar 2019 12 Apr 2019 S$0.0145 4.58%
Information as of 31 May 2019
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.
Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)
250 North Bridge Road #06-00, Raffles City Tower, Singapore 179101
Tel: (65) 6230 8133 Fax: (65) 6238 3066 www.phillipfunds.com
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