We all know the Westfield story. Having been one of the best long-term investments in decades, Westfield and its local spin-off, Scentre, now own some of the world’s best commercial retail estate properties. Places like Westfield Sydney City and Bondi Junction take the original 1960s concept of a shopping centre and turn into something more interesting, more attractive and more profitable (see How online retailing transformed the shopping centre). No wonder investors and shoppers alike have had an enduring love affair with Westfield. There really is nothing else like it on earth. Or is there? Consider this table:
|VivoCity||Westfield Sydney City|
|Traffic per m2||548 per m2 ⇑||261 per m2|
|Sales per m2||$9,392 per m2 ⇑||$6,460 per m2|
|Number of Retailers||334||353|
Imagine a shopping centre 40% smaller than Westfield Sydney but with similar annual sales and more than twice the traffic per square metre. That’s VivoCity, Singapore. If you’ve never heard of it, I’m not surprised.
APN’s Asian REIT Fund has been investing in Asian commercial property since 2011. We understand the challenge of convincing Australian investors that properties in developed Asia (primarily Singapore, Hong Kong & Japan) can be even more attractive than their Australian counterparts.
And yet the numbers have a persuasive allure. Since inception more than five years ago, Mapletree Commercial Trust (MCT), owners of VivoCity (which accounts for 60% of the trust’s revenue) and three commercial office developments in Singapore, has been a core holding in the Asian REIT Fund. It’s also been a great investment. On average, Mapletree’s share price has soared 20.2% p.a. over the past 5 years1, outperforming the general Singapore REITs market by 10.2% p.a.
But here’s the thing: despite being a fantastic performer, a rising share price has not caused us to lock in our profits. In fact, we’ve been consistently topping up our holdings and are just as excited about Mapletree now as when it first entered the portfolio 5 years ago. The reasons why highlight the kind of opportunities available in developed Asia that simply don’t exist in Australia.
Cities like Singapore, Hong Kong and Tokyo face space constraints that residents of Sydney and Melbourne, the most densely populated Australian cities, can only imagine. Land is limited and the supply of premium properties in premium locations incredibly scarce.
VivoCity, situated between Harbourfront MRT and the popular tourist island of Sentosa, makes this point clearly. Visitors heading to Sentosa have no choice but to enter VivoCity to get to their destination. Harbourfront Station is also one of the major subway interchanges, making it another pass-through mall, this time for locals. For retailers, this is location heaven, a place that captures tourists and locals alike in one of the world’s most densely populated but wealthy cities.
That’s the reason for VivoCity’s 99.9% occupancy, a fact not lost of international chains like Gap and Toys’R Us which see the centre as a natural home for their flagship and debut stores. That attracts a third kind of audience with whom Australian investors will be familiar; destination mall shoppers. So great is the attraction that VivoCity has a waiting list of potential tenants. No wonder consistent positive rent reversions is a feature of the mall’s history.
As for MapleTree’s other assets, they’re standing strong in the face of office space oversupply in Singapore. While office landlords are busy slashing rents to defend occupancy, the company’s three office assets registered an 8.1% increase in rents for FY16.
With 4 out of 5 levels of the company’s HarbourFront property’s lease renewed with positive reversion to blue chip tenant Bank of America for another 4 years, this is as stable as an income stream can get. The company’s PSA building, an integrated development comprising a three-storey retail centre with a 40-storey building, has a committed occupancy of 98.5% with about 75% of leases expiring only after 2018. And at Mapletree Anson, about 90% of leases have been locked in until 2018.
As your local real estate agent will tell you, location is key in real estate investing. In land locked, expanding Singapore, home to global multinationals and a vibrant local economy with 15 million annual visitors, VivoCity is an exceptionally well located, valuable property – exactly the kind of asset to deliver to APN investors the low risk, stable income they demand.
Investors can also take comfort in the fact that Mapletree Commercial Trust is managed by Mapletree Commercial Trust Management Ltd., a wholly-owned subsidiary of Mapletree Investments Pte Ltd. Yes, it’s complicated, but again, the numbers speak for themselves. From an initial asset base of about $3 billion2 in 2000, the company now has $33.7 billion in assets under management – a compound annual growth rate3 of 16% – and employs over 2000 people in 10 Asia Pacific and European countries.
It’s really not a stretch to draw a parallel between Westfield Sydney City and Mapletree’s VivoCity. Both offer high quality experiences to shoppers and impressive financial performance to investors. The major difference is that VivoCity benefits from even stronger geographic and demographic tailwinds, which is why Mapletree Commercial Trust remains a core holding in the APN Asian REIT Fund. Think of it as Westfield Singapore and you won’t be far off the mark.
This article has been prepared by APN Funds Management Limited (ACN 080 674 479, AFSL No. 237500) for general information purposes only and without taking your objectives, financial situation or needs into account. You should consider these matters and read the product disclosure statement (PDS) for each of the funds described in this article in its entirety before you make an investment decision. The PDS contains important information about risks, costs and fees associated with an investment in the relevant fund. For a copy of the PDS and more details about a fund and its performance click here. To receive further updates and insights from the APN team, sign up for Review, our monthly email newsletter.
- 5 years to 31 August 2016
- AUD/SGD 1.03 as at 19th September 2016
- Compounded Average Growth Rate Per Annum