Asia Tea Time - Cup 58 ☕

This week I talk a Singapore office property disposal, managing cash flow when paying your income taxes, and North Korea’s excrement-filled balloons.

Macro in Asia

Mapletree Pan Asia Commercial Trust sells Mapletree Anson for S$775 million

One of Singapore’s largest retail and commercial REITs, Mapletree Pan Asia Commercial Trust (SGX: N2IU), announced that it would sell its Mapletree Anson offices in Singapore for S$775 million.

The REIT announced that the proceeds would be use to pare down its debt load.

Why it’s happening

• Interest rates in the US have gone sky high after being basically close to zero from 2009 until 2022. That’s impacting anyone who relies on debt, like Singapore’s REITs.

• Mapletree Pan Asia Commercial Trust, also known as “MPACT”, has been hit hard by weakness in its China properties (ouch!) and a relatively high gearing ratio (basically how much debt it has compared to equity) of 40.5%.

• After the sale is done, this gearing ratio for MPACT will fall to 37.6% while its distribution per unit (DPU) should also go up slightly.

Why it matters

• Investor sentiment for Singapore REITs has been absolutely hammered by higher interest rates. This latest sale shows you the lengths that REITs are willing to go to shore up their balance sheets.

• Any REIT with China exposure is feeling the heat – both from higher rates and a particularly crappy real estate market in China, where MPACT has a sizeable portfolio.

• Falling prices in the world’s second-largest economy isn’t great news for rental rates. As a landlord, you like to see those rental prices go up, not down.

What’s next?

• All eyes will be on the Federal Reserve and when it will start cutting interest rates. While some market watchers expect maybe one to two rate cuts this year, others say there’ll be no cuts until 2025.

Tim’s Take 

Singapore’s stock market has a sizeable presence of real estate investment trusts (REITs). While they had it good in the decade or so of low interest rates, the tide has turned as the Fed started raising interest rates.  

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Perhaps more importantly for MPACT, the disappointing performance of its China portfolio has been dragging on its overall rental reversions – basically how much they can raise rents on leases up for renewal.

Beyond that, though, the sale of Mapletree Anson portends some trouble or uncertainty for the office sector more broadly. 

While commercial real estate (like office blocks) have been hit hard in places like the US, it’s not been as bad in Singapore.

That could be because the city state is land-constrained and people are now used to being back at the office. However, economic uncertainty caused by higher rates has seen a slowdown in the leasing market for commercial properties in Singapore last year.

That has dragged into 2024 and MPACT probably saw a great opportunity to realise a S$95 million gain on its Mapletree Anson property (which it purchased for S$680 million).

Its latest results also saw a higher gearing ratio than what most investors are comfortable with while negative rental reversions in China, particularly Festival Walk in Hong Kong, are offsetting strong performance from its VivoCity property in Singapore.

With rates likely to stay “higher for longer”, this sale could be an indication of more to come for Singapore REITs as they look to recycle assets and lighten that debt load.

Tim's money tip of the week

It’s income tax time for most of us in Singapore and we have to shell out that cash to the Inland Revenue Authority of Singapore (IRAS).

While dodging tax is illegal, we can definitely be smarter about how we pay it to the authorities. For instance, to better manage our monthly inflows and outflows, it counts to have positive cash flow.

That means having more cash coming in than going out. If we have a hefty, nasty tax bill to pay all in one go, that could be difficult.

Thankfully, IRAS offers individuals the opportunity to pay our tax bill in 12 monthly, interest-free installments. 

All we have to do is set up a GIRO arrangement via our bank (which is relatively easy to do), and then we can delay payment of the whole tax bill by breaking it up into much more digestible monthly repayments.

It also means you can keep that cash for paying taxes, if you do want to put a lump sum aside, in a money market fund or high-yielding cash savings account. 

At least that way, you’re earning a yield on the money you eventually have to hand over to IRAS and ensuring you have a consistent monthly cash flow that’s positive. 

Story of the week

The seemingly-inevitable clashes between South Korea and their neighbours to the north had another interesting plot twist this week.

South Korea accused North Korea of sending rubbish- and excrement-filled balloons over the border. Apparently over 260 balloons had been detected. 

While the balloons sent over from the South to the North regularly contain anti-North propaganda and mini-radios, as well as food, the North apparently said it would respond with “mounds of waste and paper filth”.

Little did people in South Korea realise that the North Korean government meant it literally.