Let locals ride on Changi Airport’s success with a Changi Airport retail Reit
LIKE many parents of school-going children, I fly overseas for leisure during the year-end school holidays.
A pleasure of flying for Singapore residents and many international visitors is using the multi-award winning Changi Airport.
However, many residents do not need the excuse of catching a flight to visit the airport. People also flock to the airport’s various retail and food and beverage (F&B) outlets.
With Jewel Changi Airport – a nature-themed mixed-use development comprising gardens, attractions, retail, dining, a hotel and facilities to support airport operations – residents have even more reasons to visit the airport.
Putting the spark back
Given Changi Airport’s strong retail offering that draws residents plus international visitors as well as the affection that many locals have for the airport, launching a Changi Airport retail real estate investment trust (Reit) can possibly put the spark back in Singapore’s Reit sector.
The government owns Changi Airport via Changi Airport Group (CAG). CAG is also Jewel’s majority owner.
For the financial year ended Mar 31, 2023, CAG’s top revenue contributors were airport service fees followed by airport concessions and rental income.
The former contributed S$878 million, while the latter contributed S$704 million – up 102 per cent year on year.
The variable rent – computed based on percentage of sales recognised within the airport concessions and rental income – was S$76 million in FY23, up from S$19 million in the previous financial year.
Segmental assets of CAG’s Jewel operations amounted to over S$1.3 billion as at end-March.
Brighter days for CAG’s retail property business came as both outbound and inbound travel demand surged. Many new brands and concepts opened at CAG’s retail facilities in FY23.
At the refreshed public and transit areas of Terminal 2, which reopened this year, there are more retail and F&B brands that are new to Changi Airport as well as novel concepts.
For example, there is a double-storey Lotte Duty Free Wines & Spirits in the transit area and a duplex cafe, Jones the Grocer, in the departure hall.
To put this in perspective, CAG’s revenue from airport concessions and rental income in FY23 exceeded the gross revenue of retail focused Paragon Reit in 2022.
Higher passenger numbers at Changi Airport could translate to even-stronger performance in CAG’s retail property business in its current financial year.
For the quarter ended Sep 30, Changi Airport handled 15.3 million passengers, up 52 per cent from the same period in 2022, but below that in the third quarter of 2019. In October, the airport handled 5.1 million passengers – 91 per cent of the pre-pandemic level in October 2019.
Compelling story
The investment story for a potential Changi Airport retail Reit is compelling.
First, this trust can ride on growing passenger traffic at Changi Airport. The airport is a busy aviation hub, which is well positioned to grow. Its product offering is strong and it benefits from increasing demand for air travel amid rising prosperity in Asia.
Singapore is investing massively to boost its tourism offering – success will support growth in visitor arrivals at Changi Airport.
Second, many major brands seek to be at Changi Airport to showcase their offerings to passengers of various nationalities.
Changi Airport’s passengers include prized demographics of businesses, such as the affluent and young professionals. Expect Changi Airport to be a top choice of brands that are highly selective on where they want to have a physical presence.
Third, people visit destination malls for experiences. Jewel boasts one of Asia’s largest indoor gardens, as well as the world’s tallest indoor waterfall. Jewel also offers recreation facilities such as mazes, bouncing and walking nets, and slides, plus an experience studio with interactive games and displays.
Many beautifully designed spaces and interesting features are found throughout Changi Airport’s terminals. Additionally, Jewel and other areas of the airport are constantly abuzz with various events that draw shopper traffic.
Fourth, this trust can grow. With the scale of the retail facilities at Changi Airport, there is much scope for asset enhancement and tenant re-mixing to drive revenue growth as well as ensure the product offering remains fresh and relevant.
Moreover, Changi Airport is expanding – carrying out its biggest expansion to date by building Terminal 5, which is expected to be operational in the mid-2030s.
Retirement adequacy
CAG may have little need to monetise its retail facilities to raise funds. However, having a Changi Airport retail Reit helps people who are searching for suitable investments to fund retirement needs amid rising life expectancy.
While Reits have been roiled by rising interest rates, people need access to high quality and well-managed property assets for recurrent income and capital gains, especially as retirees battle persistent high inflation.
Perhaps some features of the initial public offering (IPO) of Singtel can be adopted for a listing of a Reit by CAG.
The public offer of Singtel’s shares in 1993 comprised several tranches. Singapore citizens could buy Group A shares at a discounted price as part of the government’s effort to share the nation’s wealth and enlarge the base of share-owning Singaporeans. Under a loyalty share scheme, original Group A shareholders who continued to hold their shares at specific qualifying dates received more shares.
Possibly, Singapore citizens can buy units in an IPO of CAG’s retail trust at a discounted price as part of efforts to democratise real estate ownership here and broaden participation in local equities.
Over the two decades since Singapore’s first Reit listed, the need for investors to own Reits with strong portfolios remains relevant.
A trust owning the high quality, innovative, well-managed and well-patronised retail assets of the world-leading Changi Airport ticks the right boxes.
