To The Moon

Investors can position in SREITs ahead of a change in funding cost

• SREITs saw a 0-60bp q/q rise in average funding cost in 1Q24 as cost of debt is being “marked-to-market”

• Average funding cost is projected to continue increasing in 2H24F, though the rate at which it increases is expected to slow or even decrease in 2025F

• When funding costs decreases, this would serve as tailwinds to increase allocation into SREITs

Source: CGS International, CGSI Research, CME Group, and company report.

Industrial REITs’ warehouse segment saw improvements

• While rents rose 1.7% q/q, due to a rise in supply, Singapore industrial property sector saw a 0.3% q/q fall in occupancy to 88.7% in 1Q24, as reported in JTC’s quarterly market update

• Warehouse / single-user factory space / business park rents rose 2% / 2.1%/ 2.1% q/q

• c.1.6m sqm / 1m sqm of new industrial space is anticipated to come in the rest of 2024F / 2025F where the bulk would be from single-user factory space

• CGSI anticipates industrial rents to increase 0-3% in 2024F

Source: CGS International, CGSI Research, JTC, and company reports.

Retail REITs leverage on tight vacancy to maximize mall efficiency

• Retail REITs (except FCT due to divestment of Changi City Point and ongoing AEIs at Tampines 1) saw topline growth in 1QCY24 as a result of positive rental reversions and continue to see positive mid-single digits to mid-teens rental reversions for Singapore properties

• Mall occupancy stayed around high-90% range

• Tenant sales and footfall increased y/y in 1QCY24, tracking the retail sales index excluding motor vehicles closely

• Key strategy utilized was organic growth as retail SREITs pursued asset AEIs to raise mall efficiency and utilized unlocked gross floor areas

• Moving ahead, prime malls’ tight occupancy will support positive rental reversions and tenant remixing efforts to bring in stronger/trending brands, thereby increase mall efficiency and sales psf

• Nevertheless, it is mindful to account for sector risks like the possibility that weaker consumer sentiments can slowdown spending, thereby dampening tenant sentiment and hence reversions

Source: CGS International. *CGSI Research, Singstat, and company reports. Note: RSI (ex MV) stands for retail sales index excluding motor vehicles and ICVT stand for in chained volume terms (i.e. in constant terms). PGNREIT’s tenant sales weighed down by Paragon mall – two mini anchor tenants were closed for renovations. ^CGSI Research and Urban Redevelopment Authority.

Hospitality REITs’ room rates remain resilient but occupancy lags

• Singapore’s 1Q24 was robust due to strong concert calendar and China-Singapore visa exemption (began 9 Feb 2024) which coincided with Lunar New Year period which is historically peak travel month for Chinese travelers

• Despite weaker corporate demand as corporate bookings have not recovered to pre-Covid levels, Singapore hotels saw RevPAR / room rate / occupancy growth rates of 13.7% / 8.6% / 4.5% pts y/y in 1Q24

• With that, Singapore market appears to be on track to deliver FY24F RevPAR growth of 5-10%

• Opex most probably peaked as elevated manpower costs have been reflected, where a portion have been offset by decline in electricity tariffs locked for FY24F

• Nevertheless, it is mindful to account for sector risks like macroeconomic slowdown reducing corporates and individuals’ appetite for travel, which would drag hotel room rates and occupancy rates

Source: CGS International. *CGSI Research, Singapore Tourism Board, and company reports. ^CGSI Research and Singapore Tourism Board.

Office REITs’ supply disruption exerts short-term pressure

• According to URA, amidst limitations in capex, and tight financing conditions, Singapore spot office rents in Central fell 1.7% q/q and occupancy fell 0.3% pt q/q to 90.1%

• Despite that, Singapore office REITs saw positive rental reversions

• URA statistics also showed new incoming supply was high at 352,000 sqm for 9M24, before dropping in 2025-2026F, which would moderate short-term office rental growth

• Despite that, CGSI anticipates office SREITs to see positive single-digit (0-5%) rental growth for 2024F as expiring rents are currently under spot market rents

Source: CGS International, CGSI Research, URA, and company reports.

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$CSOP S-REITs INDEX ETF(SRT.SI)$

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