SGX Market Updates

SGX’s US-Focused Office REITs December Quarter Earnings


PUBLISHED ON |

25 February 2020

  • Of the S-REITs on SGX, at least 10 are engaged in the acquisition, development, ownership, leasing, management and operation of office properties located in Singapore, Malaysia, South Korea, Australia, Europe, UK and the US. Among them, three – Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT – are focused on the US office market.

  • For the quarter ended 31 Dec 2019, the three trusts averaged a DPU of 1.57 US cents. The trio averaged a net property income of US$24.2 million and a gross revenue of US$38.7 million.

  • SGX’s three US-focused office REITs have a combined market cap of more than S$3 billion. In the 2020 YTD they have averaged a total return of 11.4%, bringing their 1Y total returns to 29.5%. As Prime US REIT was listed on 19 July 2019, its 1Y performance spans only 7M.




As at end-2019, Singapore listed 35 REITs, six stapled trusts and two property trusts. These trusts contributed 24% to day-to-day turnover of Singapore’s stock market over the last calendar year. In contrast, the 43 trusts maintained a combined market value of more than S$111.9 billion, representing 12% of Singapore’s stock market capitalisation of S$937.8 billion at the end of last year.

Of the S-REITs on SGX, at least 10 are engaged in the acquisition, development, ownership, leasing, management and operation of office properties located in Singapore, Malaysia, South Korea, Australia, Europe, UK and the US.  Among them, three – Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT – are focused on the US office market. Last month, the trio reported their results for the three months ended 31 December 2019. 



Earnings Highlights

For the quarter ended 31 December 2019, the three trusts averaged a distribution per unit (DPU) of 1.57 US cents. Prime US REIT, which made its trading debut on 19 July 2019, reported the highest DPU of 1.77 US cents, up 9.0% from its IPO forecast. Manulife US REIT reported a 5.9% YoY decline in DPU to 1.44 US cents due to its enlarged unit base, following its private placement and preferential offerings to fund acquisitions.

The trio averaged a net property income of US$24.2 million and a gross revenue of US$38.7 million.

The three REITs averaged an aggregate leverage ratio of 36.1% as of the quarter ended 31 December 2019. Manulife US REIT had the highest aggregate leverage ratio of 37.7%, while Prime US REIT had the lowest gearing of 33.7%. Interest cover for the trio averaged 4.7 times in the Dec quarter. Prime US REIT had the highest interest coverage ratio of 5.5 times, followed by Keppel Pacific Oak US REIT at 4.8 times.



Dec 2019 Quarter Financial Results

Name DPU
(US cts)
YoY Chg
(%)
Net Property
Income
(US$M)
YoY Chg
(%)
Gross Revenue
(US$M)
YoY Chg
(%)
MANULIFE US REIT 1.44* -5.9 30.3 18.9 48.8 20.4
PRIME US REIT 1.77 9.0^ 22.3 3.0^ 33.5 2.0^
KEPPEL PACIFIC OAK US REIT 1.51 20.8 20.1 37.1 33.8 37.8
Average 1.57   24.2   38.7  

* 4Q2019 DPU calculation based on enlarged unit base following the private placement under which 91,325,000 units were issued on 30 Sep 2019 (Capitol Private Placement Units) and preferential offering where 72,855,530 units were issued on 18 Oct 2019 (Capitol Preferential Offering Units).
^ Using IPO Forecast, not YoY Performance, as comparison basis since trading debut was 19 July 2019



Name Aggregate Leverage
Ratio (%)
as at
31 Dec 2019
Aggregate Leverage
Ratio (%)
as at
30 Sep 2019
Interest Coverage
Ratio (x)
as at
31 Dec 2019
Interest Coverage
Ratio (x)
as at
30 Sep 2019
MANULIFE US REIT 37.7 36.3 3.8 3.8
PRIME US REIT 33.7 NA~ 5.5 NA~
KEPPEL PACIFIC OAK US REIT 36.9 38.5 4.8 4.6
Average 36.1   4.7  

~ No YoY performance data available as listing date was 19 July 2019
Source: Company data



Outlook


Manulife US REIT
  • The lagged effects of the US Federal Reserve’s monetary policy tightening and trade-related uncertainties are expected to impact the growth in the first half of the year.
  • We expect modest acceleration to take place in the second half of the year as the decline in mortgage rates, a reacceleration in business investment, and easier monetary conditions work their way through the broader economy.
  • With a healthy jobs market (unemployment rate is at 40-year low) and the low interest rate environment, the stage is set for consumer spending to continue to grow at a healthy pace in 2020.
  • As for the coronavirus outbreak in China, it is too soon to know how deep the impact may be on the global and US economies.

Click here for the full results release. 


Prime US REIT
  • Prime’s diversified portfolio is supported by its favourable tenant exposure in the STEM (Science, Technology, Engineering and Mathematics) and/or TAMI (Technology, Advertising, Media and Information) sectors.
  • Real estate information provider CoStar expects the tech sector to continue its outperformance through 2020.
  • With the coronavirus outbreak unfolding in China and globally, we continue to closely monitor its impact on the global economy.
  • Barring any unforeseen circumstances, we remain cautiously optimistic about the US office market.

Click here for the full results release.


Keppel Pacific Oak US REIT
  • We will continue to leverage KORE’s strategic exposure to fast-expanding tech hubs and the REIT’s unique value proposition of having its office towers and business campus-style properties that are desired by many companies, especially those in the tech sector.
  • The Manager will also continue its strategy of pursuing value-accretive acquisitions in first-choice submarkets in key US growth markets with visible organic growth opportunities supported by positive rental reversion.
  • The Manager’s continued prudent approach towards capital management and its proactive leasing efforts will also see KORE capture rental escalations and positive rental reversions as leases expire.

Click here for the full results release.



2019 Performances

SGX’s three US-focused office REITs have a combined market cap of more than S$3 billion. In the 2020 year-to-date, they have averaged a total return of 11.4%, bringing their one-year total returns to 29.5%. Note that since Prime US REIT was listed on 19 July 2019, its one-year performance spans only seven months.

The table below details SGX’s three US-focused office REITs, sorted by market cap. The trio trades in USD, with their SGD equivalents shown in table.

Name SGX
Code
Market
Cap
S$m
Total
Return
2019
%
Total
Return
YTD
%
Total
Return
1 Yr
%
MANULIFE US REIT BTOU 1,631 40.2 9.9 37.6
PRIME US REIT OXMU 1,061 NA 16.7 17.0
KEPPEL PACIFIC OAK US REIT CMOU 744 39.1 7.6 33.9
Average   11.4 29.5

Source: Bloomberg & StockFacts (data as of 20 Feb 20)
* 7M performance as listing date was 19 July 2019







This article is provided by SGX My Gateway.



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