• The 25 largest capitalised Real Estate stocks that reported more than 80% of their revenue to Singapore based on Annual Reports, maintain an average market cap of S$3.0 billion, ranging from S$7.5 billion for A-REIT to S$718 million for Hong Fok Corp.

 

• After strong performances in 2017, when all 25 stocks gained & averaged a 28.5% total return, 18 of the 25 stocks declined over the first seven weeks of 2018, with average YTD price declines at 2.7%. Dividends have provided some offset, with Trusts making up 16 of the 25 stocks, trimming the average decline in total return to 1.9%.
• The seven of the 25 stocks that generated price gains in the YTD included ESR-REIT (+4.4%), OUE (+4.3%), Oxley Holdings (1.5%), United Industrial Corp (+1.2%), AIMS AMP Capital Industrial (+0.7%), Far East Hospitality Trust (+0.7%) and OUE Hospitality Trust (+0.6%).

2017 & 2018 YTD Performances of Singapore Real Estate Plays The past 12 months have seen a number of key developments in the Sector. Common themes across Singapore’s real estate market in 2017 were the stabilisation of prices and rental rates in addition to supply tapering. The 25 largest capitalised stocks of the Real Estate Sector that reported at least 80% of their revenue to Singapore in their latest Annual Report averaged a 28.5% total return in 2017. The 2018 has commenced with a possible element of profit-taking on cyclical Sectors on the backdrop of higher long term interest rates on potential inflation growth. Additionally, Singapore’s new top marginal stamp duty rate of 4% (applied to a portion of residential property value which is more than S$1 million) has seen the 25 stocks have given back some of the 2017 gains, averaging a decline in total return of 1.9%.   There have been seven of the 25 stocks that generated price gains in the 2018 year thus far. These include ESR-REIT, OUE, Oxley Holdings, United Industrial Corp, AIMS AMP Capital Industrial, Far East Hospitality Trust and OUE Hospitality Trust. On a total return basis, which assumes dividends distributions are reinvested into the stock, OUE Commercial REIT and Cache Logistics Trust have also generated positive returns in the 2018 year thus far. The 25 largest capitalised stocks of the Real Estate Sector that reported at least 80% of their revenue to Singapore in their latest Annual Report are tabled below. To see more details on each of the stocks below, click on the stock name.

Name	SGX Code	Market Cap S$M	Last  Close $	Price Change  YTD %	Total Return YTD %	2017 Total Return %	P/B (x)
Ascendas REIT	A17U	7,536.8	2.61	-4.0	-4.0	27.4	1.3
CapitaLand Mall Trust	C38U	7,092.8	2.00	-6.1	-4.8	19.5	1.0
UOL Group	U14	7,014.2	8.33	-6.1	-6.1	51.2	0.8
CapitaLand Commercial Trust	C61U	6,350.3	1.76	-8.8	-6.8	42.1	1.0
Suntec REIT	T82U	5,135.7	1.93	-10.2	-9.1	37.6	0.9
United Industrial Corp	U06	4,797.8	3.35	1.2	1.2	20.6	0.7
Mapletree Commercial Trust	N2IU	4,550.6	1.58	-2.5	-1.1	23.0	1.1
Keppel REIT	K71U	4,097.6	1.21	-4.0	-2.9	30.1	0.9
Mapletree Industrial Trust	ME8U	3,713.9	1.97	-3.0	-2.1	32.2	1.4
SPH REIT	SK6U	2,554.8	0.995	-5.2	-4.0	16.8	1.1
GuocoLand	F17	2,496.8	2.11	-5.8	-5.8	28.1	0.6
Wheelock Properties (S)	M35	2,201.7	1.84	-3.2	-3.2	32.7	0.7
Oxley Holdings	5UX	2,156.6	0.665	1.5	1.5	71.9	1.8
Frasers Centrepoint Trust	J69U	1,990.3	2.15	-4.0	-2.8	24.8	1.1
OUE	LJ3	1,758.5	1.95	4.3	4.3	8.2	0.4
Bukit Sembawang Estates	B61	1,574.2	6.08	-3.0	-3.0	47.1	1.3
OUE Hospitality Trust	SK7	1,553.2	0.855	0.6	2.0	38.2	1.1
Far East Hospitality Trust	Q5T	1,346.4	0.725	0.7	0.7	27.9	0.8
OUE Commercial REIT	TS0U	1,096.2	0.71	-1.4	1.8	11.0	0.8
Fragrance Group	F31	1,060.5	0.158	-6.0	-6.0	5.0	1.0
AIMS AMP Capital Industrial	O5RU	936.3	1.37	0.7	1.3	13.5	1.0
Cache Logistics Trust	K2LU	909.2	0.85	-0.6	1.3	19.0	1.2
Viva Industrial Trust	T8B	868.2	0.895	-4.3	-2.4	33.6	1.2
ESR-REIT	J91U	775.0	0.59	4.4	6.1	12.0	1.0
Hong Fok Corp	H30	718.3	0.825	-4.1	-4.1	38.2	0.4
Average:				-2.7	-1.9	28.5	1.0

Source: SGX StockFacts, Bloomberg (Data as of 20 February 2018). Note the table above includes companies, REITS and Stapled Trusts.   For 3Q17, the URA Property Price Index (Residential) generated its first quarter-on-quarter gain since 3Q13 of +0.7%, which was followed with +0.8% for 4Q17. URA also noted that the prices of office space increased by 2.7% in 4Q17, compared with the 0.4% increase in 3Q17. More on the segments, pipeline, stock and vacancies can be found here. Almost a year ago, the Singapore Government announced calibrated adjustments to existing property cooling measures. Property cooling measures imposed by the government over recent years such as stamp duties and loan restrictions have helped stabilise increasing demand. Examples of major policy measures included the raising of seller stamp duties (SSD) and additional buyer stamp duties (ABSD) in 2011, and further ABSD changes and the introduction of a total debt servicing ratio (TDSR) in 2013. On 19 February, the Singapore Budget announced that the aforementioned top marginal buyer's stamp duty for residential properties would rise to 4% from 3% effective 20 February. MAS Managing Director Ravi Menon noted mid-2017 that private home sales had seen signs of stabilising in Singapore and that property prices should be aligned with the broader income trends of the local economy. Mr Menon further noted that the local property market had substantially stabilised over the last three years with underlying demand for private homes remaining firm amidst a low interest rate environment. With the release of the MAS Annual Report 2016/17 on 29 June 2017, Mr Menon stated that the cooling measures remain necessary and it was not yet time to ease them. Valuations The Price-to-Book (P/B) ratio is used to compare a stock's market value to its book value. The median P/B of the 25 stocks is currently 1.00x, compared to their five year median P/B of 0.98x.

• Stocks that saw the highest increase in their P/B relative to their respective five year average were Oxley Holdings, OUE Hospitality Trust, UOL Group, Far East Hospitality TRUST and United Industrial Corp.
• Meanwhile, of the 25 stocks, Fragrance Group, OUE Commercial Real Estate, Hong Fok Corp, CapitaLand Mall Trust, Frasers Centrepoint Trust are currently priced at the highest discount to their five year average P/B.

Individual P/B ratios and histories can be found on the relevant StockFacts pages. The 25 stocks maintain a median Price-to-Earnings (P/E) ratio of 17.6x and a five year median P/B of 16.9x. The 25 stocks  also maintain an average indicative dividend yield of 4.3%. 2017’s Lesson in Portfolio Correlations On a global basis the Real Estate Sector has expanded over time, so much as to see the GICS® structure remove Real Estate as a sub-sector of Financials, hoisting Real Estate as its own Sector in 2016. When the change took place in August 2016, leading investment fund provider Fidelity noted that globally, Real Estate as a standalone sector would be driven almost entirely by REITs. Fidelity added Real Estate would hence have a fairly low correlation to other Sectors, giving investors another lever to consider at the Sector level for portfolio exposure. Fidelity suggested that Real Estate’s lowest correlations would be to Energy and Information Technology (“IT”) and its highest correlations would be to the relatively defensive Utilities and Health Care Sectors (click here for more). Last year, Energy was Singapore’s least performing Sector with a flat performance and IT was its strongest performing Sector with close to 101% average gains by its ten largest stocks. Utilities and Healthcare were the strongest of the defensive Sectors with respective capitalisation-weighted returns of 12% and 6%.  The eight Healthcare stocks with 80% of their revenue recently booked to Singapore averaged a 12% total return in 2017 while the largest Singapore Utility pure play Keppel Infrastructure Trust (KIT) gained 29.8%. Hence, in-line with the Fidelity analysis, the average total returns of the 25 largest capitalised Singapore-focused Real Estate plays in 2017 (at 29.8%), were closer to the returns of the Utilities and Healthcare Sectors than IT and Energy. For a recent Market Update illustrating the individual Sector returns of 2017 click here. Did You Know? Property Cycles Differ Across Regions Much like property prices, rents and interest rates, the Real Estate Sector is cyclical, and driven by the basic forces of property Supply and Demand.  Stocks in the Sector are distinguished by where their properties are managed, developed or serviced. The distinction is important, because property cycles are very different across the world and region. In November, City Developments Limited (“CDL”) CDL Executive Chairman, Kwek Leng Beng noted distinct differences in Singapore’s current property cycle. Mr Kwek observed:

• Many countries like China, Australia & United Kingdom have reached their peak of the property boom and have only recently implemented property cooling measures.
• However, for Singapore, a series of property cooling measures have been imposed since 2009; and
• The current momentum will strengthen and the positive sentiment of pent-up demand will fuel increased activity in Singapore’s residential property sector which has undergone several years of subdued market conditions since its peak in 2007.

CDL which reports its FY17 results before the 28 February open, reported 48% of its revenue to Singapore in FY16 compared to 60% in FY09. As tabled above, the five largest capitalised Real Estate stocks that reported more than 80% of their revenue to Singapore in their most recent Annual Reports include Ascendas Real Estate Investment Trust (“REIT”) CapitaLand Mall Trust, UOL Group, CapitaLand Commercial Trust and Suntec REIT.