SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

Capitaland Integrated Commercial Trust / Equity Bottom-Up

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<ul>
<li>
In January, CapitaLand proposed a merger of CCT and CMT in an S$8.3 billion cash-and-stock deal. Both REITs will hold their respective unitholder meetings on 29 Sep to seek approval for the proposed deal with the long stop date on 30 Nov. 
	 </li>
	<li>
Should unitholders support the CCT-CMT merger, there will be a new constituent added to the STI. The current STI Reserve List (sort by highest market cap) is made up of Keppel DC REIT (S$4.9B), Fraser Logisitics &amp; Commercial Trust (S$4.6B), Suntec REIT (S$4.1B),  NetLink NBN Trust (S$3.9B) and Keppel REIT (S$3.7B). 
	 </li>
	<li>In July, ESR-REIT and Sabana REIT announced a proposed merger, by way of a trust scheme of arrangement, which will see ESR-REIT acquiring all units of Sabana REIT from the unitholders of Sabana REIT, in exchange for new units in ESR-REIT. In Oct 2018, ESR-REIT completed a merger with Viva Industrial Trust also via a trust scheme of arrangement.</li>
</ul>
 

CCT-CMT Merger

<ul>
<li>On 22 January 2020, CapitaLand announced the <a href="https://links.sgx.com/1.0.0/corporate-announcements/31FVSE7287FY7AYV/594070_2.%20%20Joint%20News%20Release.pdf">proposed merger</a> of CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) in an S$8.27 billion cash-and-stock deal</li>
	<li>The new combined entity – called CapitaLand Integrated Commercial Trust (CICT) – is expected to become the third largest REIT in the Asia Pacific and the biggest in Singapore, with market cap of about $16.8 billion and combined property value of about $22.9 billion (based on valuations of CMT's and CCT's properties as at Dec 31, 2019)</li>
	<li>With 15 shopping centres, CMT is the largest mall owner in Singapore, while CCT is the biggest office landlord with 10 buildings, eight in Singapore and two in Frankfurt, Germany</li>
	<li>The deal, by way of a trust scheme of arrangement, is subject to the approval of unitholders of CMT and CCT, and will see CMT acquiring all the issued units in CCT in the form of cash and new CMT units</li>
	<li>For each CCT unit they hold, CCT unitholders will receive $0.259 in cash and 0.72 new CMT units at an issue price of S$2.59 apiece</li>
	<li>This means CCT unitholders will be paid a scheme consideration of $2.1238 per CMT unit, which implies a gross exchange ratio of 0.82 times</li>
	<li>The <a href="https://links.sgx.com/1.0.0/corporate-announcements/VL9CP9Y2WY0RHL9A/630526_Joint%20Announcement_Extension%20of%20Long%20Stop%20Date%20to%2030%20November%202020.pdf">long-stop date</a> for the proposed merger between CMT and CCT has been extended from Sept 30 to Nov 30</li>
	<li>Both REITs will hold their respective unitholder meetings on Sept 29 to seek approval for the proposed deal</li>
	<li>The two trust managers have added deal sweeteners for their proposed merger, such as higher accretion to their respective distribution per unit (DPU)</li>
	<li>CMT is also waiving the acquisition fee of $111.2 million in recognition of the unprecedented circumstances brought about by COVID-19 – an increase from the 50% it said it would waive in January</li>
</ul>
 

ESR-REIT-Sabana REIT Merger

<ul>
<li>On 16 July 2020, ESR-REIT and Sabana Shari'ah Compliant Industrial REIT announced a <a href="https://links.sgx.com/1.0.0/corporate-announcements/BOQ68CNY7KPCODUD/623894_Press%20Release%20-%20ESR-REIT%20and%20Sabana%20REIT%20Announce%20Proposed%20Merger.pdf">proposed merger</a>, by way of a trust scheme of arrangement, which will see ESR-REIT acquiring all units of Sabana REIT from the unitholders of Sabana REIT, in exchange for new units in ESR-REIT</li>
	<li>The Enlarged REIT will become the fourth-largest industrial S-REIT by market share based on gross floor area (GFA)</li>
	<li>The scheme consideration is based on a fixed gross exchange ratio of 0.94 new ESR-REIT consideration units in exchange for each Sabana REIT unit, and not a fixed issue price.</li>
	<li>By way of illustration, if the scheme becomes effective, each Sabana REIT unitholder will receive 94 new ESR-REIT consideration units for every 100 Sabana REIT units held</li>
	<li>Following the merger, the sponsor, ESR Cayman, is expected to hold about 12.2% of the total issued units in the Enlarged REIT</li>
	<li>The Enlarged REIT will have a market capitalisation of approximately S$1.8 billion, and a free float of approximately S$1.3 billion, approximately 4.5x of Sabana REIT’s free float.</li>
	<li>The Enlarged REIT will have an expanded network of 75 assets with a total GFA of about 19.2 million square feet across Singapore</li>
	<li>Last month, the Monetary Authority of Singapore (MAS) clarified that a shareholder group can own substantial stakes in two REIT managers that manage trusts invested in the same property class. More details on what MAS said are found <a href="https://www.mas.gov.sg/news/media-releases/2020/mas-response-to-queries-on-proposed-merger-of-esr-reit-and-sabana-reit">here</a>.</li>
</ul>
 

Completed REIT Mergers

<ul>
<li>In January 2019, CapitaLand kicked off the consolidation wave in Singapore’s REIT industry by striking a S$6 billion deal with Temasek Holdings to combine Ascendas and Singbridge</li>
	<li>This was followed by OUE Commercial REIT, which agreed to buy OUE Hospitality Trust in April 2019</li>
	<li>In July 2019, Ascott Residence Trust and Ascendas Hospitality Trust agreed to create the largest hospitality trust in the Asia-Pacific region, with S$7.6 billion of assets comprising serviced residences and hotels</li>
	<li>Last December, Frasers Logistics &amp; Industrial Trust agreed to buy Frasers Commercial Trust in a S$1.5 billion deal</li>
</ul>
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In January, CapitaLand proposed a merger of CCT and CMT in an S$8.3 billion cash-and-stock deal. Both REITs will hold their respective unitholder meetings on 29 Sep to seek approval for the proposed deal with the long stop date on 30 Nov.  
	 
	
Should unitholders support the CCT-CMT merger, there will be a new constituent added to the STI. The current STI Reserve List (sort by highest market cap) is made up of Keppel DC REIT (S$4.9B), Fraser Logisitics &amp; Commercial Trust (S$4.6B), Suntec REIT (S$4.1B),  NetLink NBN Trust (S$3.9B) and Keppel REIT (S$3.7B). 
	 
	In July, ESR-REIT and Sabana REIT announced a proposed merger, by way of a trust scheme of arrangement, which will see ESR-REIT acquiring all units of Sabana REIT from the unitholders of Sabana REIT, in exchange for new units in ESR-REIT. In Oct 2018, ESR-REIT completed a merger with Viva Industrial Trust also via a trust scheme of arrangement.

 

CCT-CMT Merger


On 22 January 2020, CapitaLand announced the proposed merger of CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) in an S$8.27 billion cash-and-stock deal
	The new combined entity – called CapitaLand Integrated Commercial Trust (CICT) – is expected to become the third largest REIT in the Asia Pacific and the biggest in Singapore, with market cap of about $16.8 billion and combined property value of about $22.9 billion (based on valuations of CMT's and CCT's properties as at Dec 31, 2019)
	With 15 shopping centres, CMT is the largest mall owner in Singapore, while CCT is the biggest office landlord with 10 buildings, eight in Singapore and two in Frankfurt, Germany
	The deal, by way of a trust scheme of arrangement, is subject to the approval of unitholders of CMT and CCT, and will see CMT acquiring all the issued units in CCT in the form of cash and new CMT units
	For each CCT unit they hold, CCT unitholders will receive $0.259 in cash and 0.72 new CMT units at an issue price of S$2.59 apiece
	This means CCT unitholders will be paid a scheme consideration of $2.1238 per CMT unit, which implies a gross exchange ratio of 0.82 times
	The long-stop date for the proposed merger between CMT and CCT has been extended from Sept 30 to Nov 30
	Both REITs will hold their respective unitholder meetings on Sept 29 to seek approval for the proposed deal
	The two trust managers have added deal sweeteners for their proposed merger, such as higher accretion to their respective distribution per unit (DPU)
	CMT is also waiving the acquisition fee of $111.2 million in recognition of the unprecedented circumstances brought about by COVID-19 – an increase from the 50% it said it would waive in January

 

ESR-REIT-Sabana REIT Merger


On 16 July 2020, ESR-REIT and Sabana Shari'ah Compliant Industrial REIT announced a proposed merger, by way of a trust scheme of arrangement, which will see ESR-REIT acquiring all units of Sabana REIT from the unitholders of Sabana REIT, in exchange for new units in ESR-REIT
	The Enlarged REIT will become the fourth-largest industrial S-REIT by market share based on gross floor area (GFA)
	The scheme consideration is based on a fixed gross exchange ratio of 0.94 new ESR-REIT consideration units in exchange for each Sabana REIT unit, and not a fixed issue price.
	By way of illustration, if the scheme becomes effective, each Sabana REIT unitholder will receive 94 new ESR-REIT consideration units for every 100 Sabana REIT units held
	Following the merger, the sponsor, ESR Cayman, is expected to hold about 12.2% of the total issued units in the Enlarged REIT
	The Enlarged REIT will have a market capitalisation of approximately S$1.8 billion, and a free float of approximately S$1.3 billion, approximately 4.5x of Sabana REIT’s free float.
	The Enlarged REIT will have an expanded network of 75 assets with a total GFA of about 19.2 million square feet across Singapore
	Last month, the Monetary Authority of Singapore (MAS) clarified that a shareholder group can own substantial stakes in two REIT managers that manage trusts invested in the same property class. More details on what MAS said are found here.

 

Completed REIT Mergers


In January 2019, CapitaLand kicked off the consolidation wave in Singapore’s REIT industry by striking a S$6 billion deal with Temasek Holdings to combine Ascendas and Singbridge
	This was followed by OUE Commercial REIT, which agreed to buy OUE Hospitality Trust in April 2019
	In July 2019, Ascott Residence Trust and Ascendas Hospitality Trust agreed to create the largest hospitality trust in the Asia-Pacific region, with S$7.6 billion of assets comprising serviced residences and hotels
	Last December, Frasers Logistics &amp; Industrial Trust agreed to buy Frasers Commercial Trust in a S$1.5 billion deal




S-REIT M&As: CCT-CMT & ESR-REIT-Sabana REIT Mergers

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 <img src='https://api2.sgx.com/sites/default/files/2020-06/EliteCREIT-CEO.jpg' alt='Shaldine Wang ' />
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 <div class='content-caption'>Shaldine Wang </div>
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With a career spanning two decades and a swathe of industries, Shaldine Wang is always looking out for ways to push her boundaries.

The Chief Executive Officer of the manager of SGX-listed Elite Commercial REIT believes in keeping an open heart and mind when it comes to opportunities and challenges.

As Lao Tzu once said, “The journey of a thousand miles begins with a single step”, and Wang embraces this, with a glass half-full approach. “Every step you take along the way will teach you lessons – whether from failure or success – and prepare you for the next stage.”

“Don’t be afraid of the unknown – just give it a shot. You’ll never know what might come of it, and you could be pleasantly surprised,” she added.

A Bachelor of Science graduate from Canada’s University of Guelph, Wang also holds a Master of Arts in International Financial Analysis from UK’s University of Newcastle Upon Tyne.

Her career history included senior management roles with Hong Kong-listed China Huarong Energy Co Ltd, Singapore-listed Pacific Shipping Trust, which was later taken private, as well as SGX-listed Cambridge Industrial Trust, now renamed ESR-REIT.

“I’m not a single-sector veteran, and new challenges arise when you work in different industries,” Wang noted.

“When I was presented with the opportunity to move into the REIT sector with Cambridge Industrial Trust, I was filled with doubts and questions – I kept asking myself, Can I really do the job? Is this the right move?”

Wang took that leap of faith. Fast-forward 10 years, and now at the helm of Elite Commercial REIT, she has come full circle.

“Among all the sectors I’ve worked in, real estate holds a certain charm for me,” she admitted. “And in this part of the world, property is very close to our hearts – it’s an enduring asset that we want to hold for posterity.”

Listed on SGX in February this year, Elite Commercial REIT is Singapore’s first and only UK-focused real estate investment trust. Elite’s portfolio comprises 97 commercial buildings, which are primarily occupied by the Department for Work and Pensions (DWP) for job centre, back office and call centre functions. 
About 40% of its portfolio by gross rental income is situated in London, the South and the Midlands. With a long weighted average lease expiry (WALE) of 8.6 years, the portfolio is valued at about £319 million. 
 

Defensive and Stable 
 

The DWP is the UK Government’s largest public service department, responsible for crucial welfare, pensions and child maintenance services for approximately 20 million claimants. Integral to the country’s social fabric, DWP is a uniquely counter-cyclical occupier with its claimant counts, job centre footfall and benefit spending, all which are highly correlated to economic conditions.

Sponsors – who own about 20% of the REIT – comprise Elite Partners Holdings, a Singapore-based investment holding firm for Elite Partners Group, property and construction firm Ho Lee Group, and Sunway RE Capital, a wholly owned united of Malaysian conglomerate Sunway Bhd.

The REIT manager, Elite Commercial REIT Management, is 85% held by Elite Partners Holdings, in which Ho Lee Group and former Viva Industrial Trust founder Victor Song have a stake. Sunway RE Capital owns the remaining 15%.

“From the start, when we were selecting assets for Elite’s portfolio, we found that commercial assets with the UK Government as the anchor tenant were particularly attractive to investors – the risk profiles for commercial versus sovereign tenants are obviously different,” Wang recalled.

“So we decided that Elite would be the first listed REIT to offer this asset class to investors in Asia.”

Having gone asset-light since the mid-90s, the UK Government is a large occupier of real estate in the country. This bodes well for transaction volumes and activity, which adds to the market’s depth and liquidity, Wang pointed out.

Rated AA and Aa2 by ratings agencies S&amp;P Global Ratings and Moody’s respectively, the UK Government also has one of the lowest debt-to-GDP ratios among the Group of Seven countries.

Under the full repairing and insuring (triple net) leases, responsibility for asset repairs lies with the UK Government. As landlord, Elite CREIT has no repairing or insuring liability, and will not need to bear the costs of any material repairs to the properties.

There is also embedded rental growth from inflation-linked rental escalations, which would enhance the REIT’s distributions per unit (DPU). Leases include rent reviews every five years based on the UK Consumer Price Index (CPI), subject to an annual increase of 1% to 5%.

“The Bank of England has retained its medium-term CPI target of around 2% despite the impact from COVID-19,” she added.

Looking ahead, Elite CREIT will focus on both organic and inorganic opportunities to grow its assets. “As you know, we’re not a large REIT, and expanding organically at this stage can be a challenge,” she pointed out.

“But we do have a good number of under-developed land parcels in the portfolio, such as our Peel Park asset in Blackpool, which can offer asset enhancement potential over the medium term.”

A more immediate growth boost, however, can only come from acquisitions. “One source is the Right of First Refusal (ROFR) pipeline from our Sponsor,” Wang said, referring to Elite UK Commercial Fund II, a private trust managed by Elite Partners Capital that is wholly owned by Elite Partners Holdings.

The portfolio, which comprises 62 assets across the UK, with a significant number of assets located in London and the Southeast, are “low-hanging fruit” for the REIT, she added.

Elite CREIT is also sourcing suitable acquisitions through third-party agents on the ground. Its Chief Investment Officer, Jonathan Edmunds, who is from the UK, has over 17 years of experience in the real estate industry, focusing on real estate investment and management across various sectors globally.

The UK has consistently been the second-most traded real estate market worldwide, representing about 30% of all European property transactions over the last five years.

“Even during the lockdown, government-leased assets are still being transacted in the market, which signifies how well sought-after this asset class is,” Wang noted.

“And given the government’s tenant-worthy status, which defines it as a source of long-term, stable income, many investors are now turning their attention to this segment. While current market conditions may give us more leverage on price negotiations, there’s also a lot more competition for the best assets out there.”

The REIT continues to monitor the market closely. “While we do have the debt headroom to proceed with an acquisition, we do not want to jump into any transaction immediately.”

It also remains focused on a vigorous selection process, so as to cherry-pick the right assets. “The potential asset must be compelling, yield-accretive, and provide long-term cashflow to investors,” she added. 
 

Resilient and Relevant 
 

Meanwhile, challenges abound, not the least of which is COVID-19. The International Monetary Fund has forecast a significant downturn in the global economy, and the UK economy could shrink by 6.5% this year.

“While the pandemic has created many unknowns, it has also highlighted the resilience and relevance of our government-tenanted assets,” Wang pointed out.

“The office sector has been hit by declining economic growth, business closures and restrictions on movement, resulting in increased unemployment. But that has led to a massive increase in workloads for DWP staff.”

To cope with mandatory social distancing measures and altered work hours, and as employees still require access to office infrastructure to process surging jobless claims, DWP needs additional commercial space.

In terms of rent collection, the REIT has also received three months of advance rent for the period 1 April 2020 to 30 June 2020. “At this time, having the UK Government as a key tenant differentiates us from the broader commercial REIT sector. The benefits to the portfolio are clear,” she added.

Other uncertainties include the post-Brexit economic landscape. While the UK formally left the European Union at the end of January, it’s staying under the bloc’s rules until end of 2020, as the two sides try to work out a free trade deal. “The final outcome is still a question mark at this stage,” said Wang.

Nonetheless, in a post-Brexit world, DWP would continue to play a key role in the optimal functioning of society and government. “If Brexit challenges kick in, unemployment in the country could rise, which would increase demand for DWP’s services, triggering the counter-cyclical effect all over again,” she added.

While the REIT’s day-to-day operations can be all-consuming, the 48-year-old strives to maintain a good work-life balance. Chinese calligraphy helps her de-stress and regain focus. She also makes it a point not to bring work to bed.

“Remember that every day has its own challenges. It’s important to carve out time to rest, so that you’ll have a clear mind to start again – tomorrow.” Elite Commercial REIT 
 

Elite Commercial  REIT is a Singapore REIT established with the strategy of principally investing, directly or indirectly, in commercial assets and real estate-related assets in the UK. Listed on SGX on 6 Feb 2020, Elite CREIT is the first and only UK-focused listed REIT in Singapore. Its portfolio comprises 97 predominantly freehold quality commercial buildings located across the UK, with a total net internal area of approximately 2.6 million square feet and a total site area of approximately 47 hectares. The portfolio, valued at about GBP 319 million with a long weighted average lease expiry (WALE) of 8.6 years, derives over 99.0% of its gross rental income from the AA-rated UK Government. The primary occupant is the Department for Work and Pensions (DWP), the UK’s largest public service department responsible for welfare, pensions and child maintenance for about 20 million claimants.

Elite CREIT is managed by Elite Commercial REIT Management Pte Ltd, which is 85% owned by Elite Partners Holdings Pte Ltd, and 15% owned by Sunway RE Capital Pte Ltd.

The company website is: <a href="https://elitecreit.com/">elitecreit.com</a>. 
Click <a href="https://www2.sgx.com/securities/equities/MXNU">here</a> for the company's StockFacts page. 
For the Management Discussion and Analysis from 6 Feb 2020 (listing date) to 31 Mar 2020, click <a href="https://investor.elitecreit.com/newsroom/20200511_081558_MXNU_NNYX2LMQVZT8GCS6.1.pdf">here</a>. 
 

About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations. 
For previous editions of kopi-C: the Company brew, please click <a href="http://edm.sgx.com/a/hBd-CspB86%24MfB90noBAABR54ZH/link10">here</a>.   
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to <a href="jennifer.t@sgx.com">jennifer.t@sgx.com</a>.
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    Shaldine Wang 


With a career spanning two decades and a swathe of industries, Shaldine Wang is always looking out for ways to push her boundaries.

The Chief Executive Officer of the manager of SGX-listed Elite Commercial REIT believes in keeping an open heart and mind when it comes to opportunities and challenges.

As Lao Tzu once said, “The journey of a thousand miles begins with a single step”, and Wang embraces this, with a glass half-full approach. “Every step you take along the way will teach you lessons – whether from failure or success – and prepare you for the next stage.”

“Don’t be afraid of the unknown – just give it a shot. You’ll never know what might come of it, and you could be pleasantly surprised,” she added.

A Bachelor of Science graduate from Canada’s University of Guelph, Wang also holds a Master of Arts in International Financial Analysis from UK’s University of Newcastle Upon Tyne.

Her career history included senior management roles with Hong Kong-listed China Huarong Energy Co Ltd, Singapore-listed Pacific Shipping Trust, which was later taken private, as well as SGX-listed Cambridge Industrial Trust, now renamed ESR-REIT.

“I’m not a single-sector veteran, and new challenges arise when you work in different industries,” Wang noted.

“When I was presented with the opportunity to move into the REIT sector with Cambridge Industrial Trust, I was filled with doubts and questions – I kept asking myself, Can I really do the job? Is this the right move?”

Wang took that leap of faith. Fast-forward 10 years, and now at the helm of Elite Commercial REIT, she has come full circle.

“Among all the sectors I’ve worked in, real estate holds a certain charm for me,” she admitted. “And in this part of the world, property is very close to our hearts – it’s an enduring asset that we want to hold for posterity.”

Listed on SGX in February this year, Elite Commercial REIT is Singapore’s first and only UK-focused real estate investment trust. Elite’s portfolio comprises 97 commercial buildings, which are primarily occupied by the Department for Work and Pensions (DWP) for job centre, back office and call centre functions.  
About 40% of its portfolio by gross rental income is situated in London, the South and the Midlands. With a long weighted average lease expiry (WALE) of 8.6 years, the portfolio is valued at about £319 million. 
 

Defensive and Stable 
 

The DWP is the UK Government’s largest public service department, responsible for crucial welfare, pensions and child maintenance services for approximately 20 million claimants. Integral to the country’s social fabric, DWP is a uniquely counter-cyclical occupier with its claimant counts, job centre footfall and benefit spending, all which are highly correlated to economic conditions.

Sponsors – who own about 20% of the REIT – comprise Elite Partners Holdings, a Singapore-based investment holding firm for Elite Partners Group, property and construction firm Ho Lee Group, and Sunway RE Capital, a wholly owned united of Malaysian conglomerate Sunway Bhd.

The REIT manager, Elite Commercial REIT Management, is 85% held by Elite Partners Holdings, in which Ho Lee Group and former Viva Industrial Trust founder Victor Song have a stake. Sunway RE Capital owns the remaining 15%.

“From the start, when we were selecting assets for Elite’s portfolio, we found that commercial assets with the UK Government as the anchor tenant were particularly attractive to investors – the risk profiles for commercial versus sovereign tenants are obviously different,” Wang recalled.

“So we decided that Elite would be the first listed REIT to offer this asset class to investors in Asia.”

Having gone asset-light since the mid-90s, the UK Government is a large occupier of real estate in the country. This bodes well for transaction volumes and activity, which adds to the market’s depth and liquidity, Wang pointed out.

Rated AA and Aa2 by ratings agencies S&amp;P Global Ratings and Moody’s respectively, the UK Government also has one of the lowest debt-to-GDP ratios among the Group of Seven countries.

Under the full repairing and insuring (triple net) leases, responsibility for asset repairs lies with the UK Government. As landlord, Elite CREIT has no repairing or insuring liability, and will not need to bear the costs of any material repairs to the properties.

There is also embedded rental growth from inflation-linked rental escalations, which would enhance the REIT’s distributions per unit (DPU). Leases include rent reviews every five years based on the UK Consumer Price Index (CPI), subject to an annual increase of 1% to 5%.

“The Bank of England has retained its medium-term CPI target of around 2% despite the impact from COVID-19,” she added.

Looking ahead, Elite CREIT will focus on both organic and inorganic opportunities to grow its assets. “As you know, we’re not a large REIT, and expanding organically at this stage can be a challenge,” she pointed out.

“But we do have a good number of under-developed land parcels in the portfolio, such as our Peel Park asset in Blackpool, which can offer asset enhancement potential over the medium term.”

A more immediate growth boost, however, can only come from acquisitions. “One source is the Right of First Refusal (ROFR) pipeline from our Sponsor,” Wang said, referring to Elite UK Commercial Fund II, a private trust managed by Elite Partners Capital that is wholly owned by Elite Partners Holdings.

The portfolio, which comprises 62 assets across the UK, with a significant number of assets located in London and the Southeast, are “low-hanging fruit” for the REIT, she added.

Elite CREIT is also sourcing suitable acquisitions through third-party agents on the ground. Its Chief Investment Officer, Jonathan Edmunds, who is from the UK, has over 17 years of experience in the real estate industry, focusing on real estate investment and management across various sectors globally.

The UK has consistently been the second-most traded real estate market worldwide, representing about 30% of all European property transactions over the last five years.

“Even during the lockdown, government-leased assets are still being transacted in the market, which signifies how well sought-after this asset class is,” Wang noted.

“And given the government’s tenant-worthy status, which defines it as a source of long-term, stable income, many investors are now turning their attention to this segment. While current market conditions may give us more leverage on price negotiations, there’s also a lot more competition for the best assets out there.”

The REIT continues to monitor the market closely. “While we do have the debt headroom to proceed with an acquisition, we do not want to jump into any transaction immediately.”

It also remains focused on a vigorous selection process, so as to cherry-pick the right assets. “The potential asset must be compelling, yield-accretive, and provide long-term cashflow to investors,” she added. 
 

Resilient and Relevant 
 

Meanwhile, challenges abound, not the least of which is COVID-19. The International Monetary Fund has forecast a significant downturn in the global economy, and the UK economy could shrink by 6.5% this year.

“While the pandemic has created many unknowns, it has also highlighted the resilience and relevance of our government-tenanted assets,” Wang pointed out.

“The office sector has been hit by declining economic growth, business closures and restrictions on movement, resulting in increased unemployment. But that has led to a massive increase in workloads for DWP staff.”

To cope with mandatory social distancing measures and altered work hours, and as employees still require access to office infrastructure to process surging jobless claims, DWP needs additional commercial space.

In terms of rent collection, the REIT has also received three months of advance rent for the period 1 April 2020 to 30 June 2020. “At this time, having the UK Government as a key tenant differentiates us from the broader commercial REIT sector. The benefits to the portfolio are clear,” she added.

Other uncertainties include the post-Brexit economic landscape. While the UK formally left the European Union at the end of January, it’s staying under the bloc’s rules until end of 2020, as the two sides try to work out a free trade deal. “The final outcome is still a question mark at this stage,” said Wang.

Nonetheless, in a post-Brexit world, DWP would continue to play a key role in the optimal functioning of society and government. “If Brexit challenges kick in, unemployment in the country could rise, which would increase demand for DWP’s services, triggering the counter-cyclical effect all over again,” she added.

While the REIT’s day-to-day operations can be all-consuming, the 48-year-old strives to maintain a good work-life balance. Chinese calligraphy helps her de-stress and regain focus. She also makes it a point not to bring work to bed.

“Remember that every day has its own challenges. It’s important to carve out time to rest, so that you’ll have a clear mind to start again – tomorrow.”   Elite Commercial REIT 
 

Elite Commercial  REIT is a Singapore REIT established with the strategy of principally investing, directly or indirectly, in commercial assets and real estate-related assets in the UK. Listed on SGX on 6 Feb 2020, Elite CREIT is the first and only UK-focused listed REIT in Singapore. Its portfolio comprises 97 predominantly freehold quality commercial buildings located across the UK, with a total net internal area of approximately 2.6 million square feet and a total site area of approximately 47 hectares. The portfolio, valued at about GBP 319 million with a long weighted average lease expiry (WALE) of 8.6 years, derives over 99.0% of its gross rental income from the AA-rated UK Government. The primary occupant is the Department for Work and Pensions (DWP), the UK’s largest public service department responsible for welfare, pensions and child maintenance for about 20 million claimants.

Elite CREIT is managed by Elite Commercial REIT Management Pte Ltd, which is 85% owned by Elite Partners Holdings Pte Ltd, and 15% owned by Sunway RE Capital Pte Ltd.

The company website is: elitecreit.com.  
Click here for the company's StockFacts page.  
For the Management Discussion and Analysis from 6 Feb 2020 (listing date) to 31 Mar 2020, click here.  
 

About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file  kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.  
For previous editions of kopi-C: the Company brew, please click here.    
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to jennifer.t@sgx.com.



Elite Commercial REIT: A Counter-Cyclical Play

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<ul>
<li>
MOF, IRAS &amp; MAS have announced new measures for S-REITs – 1) distribution timeline extensions to qualify for tax transparency, 2) leverage limit raised from 45% to 50% and 3) defer implementation of a new minimum interest coverage ratio (ICR) requirement to 2022. 
	 </li>
	<li>
The measures are expected to support S-REIT managers in their capital management, adding further flexibility to manage cash flows. Focus will be on DPUs and industry outlooks as S-REITs report quarter earnings over the next few weeks. 
	 </li>
	<li>
The FTSE ST REIT Index opened up 3% on 17 April, after declining 20% in the 2020 YTD through to 16 April, trimming its longer term 10 year annualised total returns to 8%, which has been in-line with regional REIT Indices.
</li>
</ul>
 

 To support S-REITs during these challenging times, <a href="https://www.mas.gov.sg/news/media-releases/2020/new-measures-to-help-reits-navigate-operating-challenges-posed-by-covid-19">MOF, IRAS and MAS have jointly announced new measures</a> on 16 April. These new measures include:

<ol>
<li>Extension of timeline for S-REITs to distribute at least 90% of their taxable income from 3 months to 12 months (after the end of FY2020) to qualify for tax transparency;</li>
	<li>Increasing leverage limit from 45% to 50%; and</li>
	<li>Defer of implementation of a new minimum interest coverage ratio (ICR) requirement to 1 Jan 2022.</li>
</ol>
The new measures, together with enhanced share issue limit announced by SGX RegCo last week, will provide S-REITs more flexibility to access various funding options and manage cash flows. With active capital management by REIT managers, S-REITs have maintained an average Debt to Asset ratio of 35.3%, based on latest company data as of 31 March 2020. Raising the leverage limit may provide S-REITs more flexibility to manage their capital structure.

List of 10 S-REITs with highest debt-to-asset ratios

<table class="table table-striped"><tbody>
<tr>
<td>Name</td>
			<td>SGX Code</td>
			<td>Mkt Cap S$M</td>
			<td>2020 YTD daily turnover S$’000</td>
			<td>17 Apr Morning Session Price Change %</td>
			<td>Debt to Assets ratio %</td>
		</tr>
<tr>
<td>
			ESR-REIT
			</td>
			<td>
			J91U
			</td>
			<td>
			1,196
			</td>
			<td>
			8,652
			</td>
			<td>
			5.9%
			</td>
			<td>
			41.5
			</td>
		</tr>
<tr>
<td>
			OUE COMMERCIAL REIT
			</td>
			<td>
			TS0U
			</td>
			<td>
			2,218
			</td>
			<td>
			1,765
			</td>
			<td>
			4.9%
			</td>
			<td>
			40.3
			</td>
		</tr>
<tr>
<td>
			CACHE LOGISTICS TRUST
			</td>
			<td>
			K2LU
			</td>
			<td>
			573
			</td>
			<td>
			1,502
			</td>
			<td>
			2.9%
			</td>
			<td>
			40.1
			</td>
		</tr>
<tr>
<td>
			IREIT GLOBAL
			</td>
			<td>
			UD1U
			</td>
			<td>
			423
			</td>
			<td>
			1,984
			</td>
			<td>
			0.8%
			</td>
			<td>
			39.3
			</td>
		</tr>
<tr>
<td>
			FAR EAST HOSPITALITY TRUST
			</td>
			<td>
			Q5T
			</td>
			<td>
			927
			</td>
			<td>
			2,242
			</td>
			<td>
			5.3%
			</td>
			<td>
			39.2
			</td>
		</tr>
<tr>
<td>
			EC WORLD REIT
			</td>
			<td>
			BWCU
			</td>
			<td>
			507
			</td>
			<td>
			1,255
			</td>
			<td>
			1.6%
			</td>
			<td>
			38.7
			</td>
		</tr>
<tr>
<td>
			KEPPEL PACIFIC OAK US REIT
			</td>
			<td>
			CMOU
			</td>
			<td>
			762
			</td>
			<td>
			3,070
			</td>
			<td>
			3.2%
			</td>
			<td>
			38.5
			</td>
		</tr>
<tr>
<td>
			SOILBUILD BUSINESS SPACE REIT
			</td>
			<td>
			SV3U
			</td>
			<td>
			469
			</td>
			<td>
			980
			</td>
			<td>
			2.7%
			</td>
			<td>
			38.2
			</td>
		</tr>
<tr>
<td>
			MANULIFE US REIT
			</td>
			<td>
			BTOU
			</td>
			<td>
			1,594
			</td>
			<td>
			8,190
			</td>
			<td>
			2.5%
			</td>
			<td>
			37.7
			</td>
		</tr>
<tr>
<td>
			SUNTEC REIT
			</td>
			<td>
			T82U
			</td>
			<td>
			3,723
			</td>
			<td>
			23,855
			</td>
			<td>
			6.8%
			</td>
			<td>
			37.7
			</td>
		</tr>
<tr>
<td>Average</td>
			<td> </td>
			<td> </td>
			<td> </td>
			<td>3.6%</td>
			<td>39.1</td>
		</tr>
<tr>
<td>Median</td>
			<td> </td>
			<td> </td>
			<td> </td>
			<td>3.0%</td>
			<td>39.0</td>
		</tr>
</tbody></table>
Source: Thomson Reuters, Company data (Data as of 16 April 2020). Price Change based on S$-terms. Note Debt/Asset metrics taken from Company data as of 31 March 2020.

S-REITs 10-year annualised returns remains above global REITs average

In the 2020 year-to-date through to 16 April, the FTSE ST REIT Index declined 19.8%, in line with the average 22.2% decline among global REIT indices. Annualised 10 year total returns of FTSE ST REIT Index was also trimmed to 8.0% but remained slightly above the average of 7.2% for global REIT indices.
</body></html>

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-04/Annualised%2010%20year.PNG' alt='Annualised 10 Year Total Return' />
 </figure>
 <div class='content-caption'>Annualised 10 Year Total Return</div>
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<html><body>The FTSE ST REIT Index is currently trading at a Price-to-Book ratio of 0.96x (below its 10 year average of 1.01x) and a forward dividend yield spread of 5.15% against Singapore 10 year Benchmark Government Bond Yield, above the STI forward dividend yield spread of 3.92%.</body></html>

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-04/FTSE%20ST%20REIT%20Index%20Yield.PNG' alt='FTSE ST REIT Index Yield ' />
 </figure>
 <div class='content-caption'>FTSE ST REIT Index Yield </div>
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S-REITs with majority of their retail properties Singapore

These 7 S-REITs averaged a decline of 29.2% for the 2020 year to date session through to 16 April. In the morning session of 17 April, they rebounded an average of 5.3% from the previous day.

<table class="table table-striped"><tbody>
<tr>
<td>
			Name
			</td>
			<td>
			SGX Code
			</td>
			<td colspan="2">
			Mkt Cap S$M
			</td>
			<td>
			Geographic Breakdown by Asset Portfolio
			</td>
			<td>
			YTD Price Return % as of 16 April
			</td>
			<td>
			Price Return on 17 April Morning Session %
			</td>
		</tr>
<tr>
<td>
			CAPITALAND MALL TRUST
			</td>
			<td colspan="2">
			C38U
			</td>
			<td>
			6,553
			</td>
			<td>
			100% SG
			</td>
			<td>
			-28.0%
			</td>
			<td>
			6.8%
			</td>
		</tr>
<tr>
<td>
			SUNTEC REIT
			</td>
			<td colspan="2">
			T82U
			</td>
			<td>
			3,723
			</td>
			<td>
			89% SG, 11% AU
			</td>
			<td>
			-28.3%
			</td>
			<td>
			6.8%
			</td>
		</tr>
<tr>
<td>
			MAPLETREE COMMERCIAL TRUST
			</td>
			<td colspan="2">
			N2IU
			</td>
			<td>
			5,873
			</td>
			<td>
			100% SG
			</td>
			<td>
			-25.9%
			</td>
			<td>
			5.6%
			</td>
		</tr>
<tr>
<td>
			FRASERS CENTREPOINT TRUST
			</td>
			<td colspan="2">
			J69U
			</td>
			<td>
			2,265
			</td>
			<td>
			100% SG
			</td>
			<td>
			-28.1%
			</td>
			<td>
			7.4%
			</td>
		</tr>
<tr>
<td>
			SPH REIT
			</td>
			<td colspan="2">
			SK6U
			</td>
			<td>
			2,185
			</td>
			<td>
			81% SG, 19% AU
			</td>
			<td>
			-26.2%
			</td>
			<td>
			3.2%
			</td>
		</tr>
<tr>
<td>
			STARHILL GLOBAL REIT
			</td>
			<td colspan="2">
			P40U
			</td>
			<td>
			1,064
			</td>
			<td>
			68.7% SG, 15.9% AU, 12.6% MY, 2.8% CN &amp; JP
			</td>
			<td>
			-33.1%
			</td>
			<td>
			4.1%
			</td>
		</tr>
<tr>
<td>
			LENDLEASE GLOBAL COMMERCIAL REIT
			</td>
			<td colspan="2">
			JYEU
			</td>
			<td>
			710
			</td>
			<td>
			71.5% SG, 28.5% Italy
			</td>
			<td>
			-34.9%
			</td>
			<td>
			3.3%
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			 
			</td>
			<td colspan="2">
			 
			</td>
			<td>
			 
			</td>
			<td>
			-29.2%
			</td>
			<td>
			5.3%
			</td>
		</tr>
<tr>
<td>
			Median
			</td>
			<td>
			 
			</td>
			<td colspan="2">
			 
			</td>
			<td>
			 
			</td>
			<td>
			-28.1%
			</td>
			<td>
			5.6%
			</td>
		</tr>
</tbody></table>
Source: Thomson Reuters, Company data (Data as of 16 April 2020). Price change based on S$-terms. Note geographic breakdown by asset portfolio taken from Company data as 31 March 2020.

 All eyes on upcoming S-REITs quarterly earnings

S-REITs are expected to release their March quarterly earnings in the coming weeks and focus outlooks on multiple areas, from continued maintenance of strong tenant relationships, to utilising balance sheets for the most effective cash flows. The new measure also requires S-REITs to disclose leverage ratios and ICRs in annual reports and interim financial results, to provide investors with timely information on their risk profiles.

Refer to weekly <a href="https://www.sgxacademy.com/economiccalendar/">Economic Calendar</a> for the latest S-REITs earnings schedule.
</body></html>





MOF, IRAS &amp; MAS have announced new measures for S-REITs – 1) distribution timeline extensions to qualify for tax transparency, 2) leverage limit raised from 45% to 50% and 3) defer implementation of a new minimum interest coverage ratio (ICR) requirement to 2022. 
	 
	
The measures are expected to support S-REIT managers in their capital management, adding further flexibility to manage cash flows. Focus will be on DPUs and industry outlooks as S-REITs report quarter earnings over the next few weeks.  
	 
	
The FTSE ST REIT Index opened up 3% on 17 April, after declining 20% in the 2020 YTD through to 16 April, trimming its longer term 10 year annualised total returns to 8%, which has been in-line with regional REIT Indices.


 

 To support S-REITs during these challenging times, MOF, IRAS and MAS have jointly announced new measures on 16 April. These new measures include:


Extension of timeline for S-REITs to distribute at least 90% of their taxable income from 3 months to 12 months (after the end of FY2020) to qualify for tax transparency;
	Increasing leverage limit from 45% to 50%; and
	Defer of implementation of a new minimum interest coverage ratio (ICR) requirement to 1 Jan 2022.

The new measures, together with enhanced share issue limit announced by SGX RegCo last week, will provide S-REITs more flexibility to access various funding options and manage cash flows. With active capital management by REIT managers, S-REITs have maintained an average Debt to Asset ratio of 35.3%, based on latest company data as of 31 March 2020. Raising the leverage limit may provide S-REITs more flexibility to manage their capital structure.

List of 10 S-REITs with highest debt-to-asset ratios



Name
			SGX Code
			Mkt Cap S$M
			2020 YTD daily turnover S$’000
			17 Apr Morning Session Price Change %
			Debt to Assets ratio %
		


			ESR-REIT
			
			
			J91U
			
			
			1,196
			
			
			8,652
			
			
			5.9%
			
			
			41.5
			
		


			OUE COMMERCIAL REIT
			
			
			TS0U
			
			
			2,218
			
			
			1,765
			
			
			4.9%
			
			
			40.3
			
		


			CACHE LOGISTICS TRUST
			
			
			K2LU
			
			
			573
			
			
			1,502
			
			
			2.9%
			
			
			40.1
			
		


			IREIT GLOBAL
			
			
			UD1U
			
			
			423
			
			
			1,984
			
			
			0.8%
			
			
			39.3
			
		


			FAR EAST HOSPITALITY TRUST
			
			
			Q5T
			
			
			927
			
			
			2,242
			
			
			5.3%
			
			
			39.2
			
		


			EC WORLD REIT
			
			
			BWCU
			
			
			507
			
			
			1,255
			
			
			1.6%
			
			
			38.7
			
		


			KEPPEL PACIFIC OAK US REIT
			
			
			CMOU
			
			
			762
			
			
			3,070
			
			
			3.2%
			
			
			38.5
			
		


			SOILBUILD BUSINESS SPACE REIT
			
			
			SV3U
			
			
			469
			
			
			980
			
			
			2.7%
			
			
			38.2
			
		


			MANULIFE US REIT
			
			
			BTOU
			
			
			1,594
			
			
			8,190
			
			
			2.5%
			
			
			37.7
			
		


			SUNTEC REIT
			
			
			T82U
			
			
			3,723
			
			
			23,855
			
			
			6.8%
			
			
			37.7
			
		

Average
			 
			 
			 
			3.6%
			39.1
		

Median
			 
			 
			 
			3.0%
			39.0
		

Source: Thomson Reuters, Company data (Data as of 16 April 2020). Price Change based on S$-terms. Note Debt/Asset metrics taken from Company data as of 31 March 2020.

S-REITs 10-year annualised returns remains above global REITs average

In the 2020 year-to-date through to 16 April, the FTSE ST REIT Index declined 19.8%, in line with the average 22.2% decline among global REIT indices. Annualised 10 year total returns of FTSE ST REIT Index was also trimmed to 8.0% but remained slightly above the average of 7.2% for global REIT indices.



      
    
    Annualised 10 Year Total Return

The FTSE ST REIT Index is currently trading at a Price-to-Book ratio of 0.96x (below its 10 year average of 1.01x) and a forward dividend yield spread of 5.15% against Singapore 10 year Benchmark Government Bond Yield, above the STI forward dividend yield spread of 3.92%.


      
    
    FTSE ST REIT Index Yield 


S-REITs with majority of their retail properties Singapore

These 7 S-REITs averaged a decline of 29.2% for the 2020 year to date session through to 16 April. In the morning session of 17 April, they rebounded an average of 5.3% from the previous day.




			Name
			
			
			SGX Code
			
			
			Mkt Cap S$M
			
			
			Geographic Breakdown by Asset Portfolio
			
			
			YTD Price Return % as of 16 April
			
			
			Price Return on 17 April Morning Session %
			
		


			CAPITALAND MALL TRUST
			
			
			C38U
			
			
			6,553
			
			
			100% SG
			
			
			-28.0%
			
			
			6.8%
			
		


			SUNTEC REIT
			
			
			T82U
			
			
			3,723
			
			
			89% SG, 11% AU
			
			
			-28.3%
			
			
			6.8%
			
		


			MAPLETREE COMMERCIAL TRUST
			
			
			N2IU
			
			
			5,873
			
			
			100% SG
			
			
			-25.9%
			
			
			5.6%
			
		


			FRASERS CENTREPOINT TRUST
			
			
			J69U
			
			
			2,265
			
			
			100% SG
			
			
			-28.1%
			
			
			7.4%
			
		


			SPH REIT
			
			
			SK6U
			
			
			2,185
			
			
			81% SG, 19% AU
			
			
			-26.2%
			
			
			3.2%
			
		


			STARHILL GLOBAL REIT
			
			
			P40U
			
			
			1,064
			
			
			68.7% SG, 15.9% AU, 12.6% MY, 2.8% CN &amp; JP
			
			
			-33.1%
			
			
			4.1%
			
		


			LENDLEASE GLOBAL COMMERCIAL REIT
			
			
			JYEU
			
			
			710
			
			
			71.5% SG, 28.5% Italy
			
			
			-34.9%
			
			
			3.3%
			
		


			Average
			
			
			 
			
			
			 
			
			
			 
			
			
			-29.2%
			
			
			5.3%
			
		


			Median
			
			
			 
			
			
			 
			
			
			 
			
			
			-28.1%
			
			
			5.6%
			
		

Source: Thomson Reuters, Company data (Data as of 16 April 2020). Price change based on S$-terms. Note geographic breakdown by asset portfolio taken from Company data as 31 March 2020.

 All eyes on upcoming S-REITs quarterly earnings

S-REITs are expected to release their March quarterly earnings in the coming weeks and focus outlooks on multiple areas, from continued maintenance of strong tenant relationships, to utilising balance sheets for the most effective cash flows. The new measure also requires S-REITs to disclose leverage ratios and ICRs in annual reports and interim financial results, to provide investors with timely information on their risk profiles.

Refer to weekly Economic Calendar for the latest S-REITs earnings schedule.



New Significant Supportive Measures for S-REITs 

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-03/Lendlease-Global-REIT-CEO.jpg' alt='Lendlease ' />
 </figure>
 <div class='content-caption'>Lendlease </div>
<!DOCTYPE html PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN" "http://www.w3.org/TR/REC-html40/loose.dtd">
<html><body>
With more than two decades of industry experience under his belt, Kelvin Chow has come to appreciate the convergence of art and science in real estate.

“Traditionally, in the area of lease management, the key requirement was just to lease the property out, get a good price, and manage its risks,” said the Chief Executive Officer of the manager of SGX-listed Lendlease Global Commercial REIT.

“But in this day and age, just focusing on the science of the transaction is not enough – there’s an art to it as well, such as finding creative ways to manage an asset, understanding the surrounding demographics, and getting the right tenant mix for the target market.”

Chow, who keeps a notebook by his pillow to jot down ideas that pop into his head during the wee hours, finds his greatest satisfaction in instances when he is able to generate value.

“What inspires me most is solving problems and unlocking potential – improving the REIT’s value proposition, such as boosting cashflow and yields, as well as managing disruptors,” he added.

Chow, who holds a Master of Business Administration from Universitas 21 Global, and is a Fellow of the Association of Chartered Certified Accountants, was appointed CEO of the manager of Lendlease Global REIT in 2019.

Prior to this appointment, he was the Managing Director of Investment Management in Asia in 2018, overseeing the asset management function and performance of the Asia funds platform.

Before joining Lendlease, he held senior financial management roles with Keppel REIT, Soilbuild Business Space REIT and then-Cambridge Industrial Trust, now called ESR-REIT.

Listed on SGX Mainboard on 2 October 2019, Lendlease Global REIT has the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally, and used primarily for retail and/or office purposes. Its initial portfolio comprises a leasehold interest in the Lendlease-developed 313@somerset retail property in Singapore, and a freehold interest in Milan’s Sky Complex that consists of three Grade A freehold office buildings. The portfolio has a total net lettable area of approximately 1.3 million square feet, with an appraised value of S$1.4 billion.

The REIT is managed by Lendlease Global Commercial Trust Management Pte Ltd, an indirect, wholly owned subsidiary of the sponsor, Lendlease Corporation Ltd. The latter is part of the Lendlease Group – an international property and infrastructure group established in 1958 and headquartered in Sydney. Listed on the Australian Securities Exchange, the Group has operations spanning Australia, Asia, Europe and the Americas.

Enhancing Performance

To generate growth, Lendlease Global REIT has adopted a three-pronged strategy – proactive asset management, investments and acquisition growth, as well as prudent capital management.

“We want to drive the performance of our existing assets, enhance our portfolio through suitable acquisitions, and manage our financing to maximise returns to unitholders,” Chow said.

For the REIT’s prime retail asset in Singapore – 313@somerset – which has developed as a differentiated lifestyle destination mall, one focus is maintaining a robust relationship with its high-quality, well-diversified base of tenants.

Leases in the mall are typically structured with three-year tenures, comprising base rent and turnover rent, which is calculated as a percentage of tenants’ gross turnover, with an average rental escalation of 3%.

The REIT is also exploring how to unlock further value for unitholders after the permissible plot ratio for 313@somerset was raised under the Urban Redevelopment Authority’s (URA) Master Plan 2019, resulting in a potential increase of up to 1,008 square metres of space based on its current gross floor area utilisation.

“We’re conducting feasibility studies on what will generate the highest cashflow possible, such as identifying specific floors in the mall where we can increase footfall or traffic,” he added.

Over in Milan, Sky Complex comprises about a third of Lendlease Global REIT’s IPO portfolio based on its appraised value. It consists of three Grade A, freehold office buildings located in one of the city’s newest and most vibrant office precincts – Milano Santa Giula.

It is 100% leased to Sky Italia, an Italian satellite television platform owned by Comcast Corporation, the world’s largest broadcasting and cable TV company by revenue. The single lease runs until 2032, with a break option in 2026.

“There is no retail component in Sky Complex. This tenant is ranked number one in the broadcasting industry, while the lease has a rental step-up clause that tracks the Italian National Institute of Statistics’ Consumer Price Index variation, and features a triple net structure whereby the tenant is generally responsible for the operating expenses of the property,” Chow said.

“It’s like owning AAA-rated bonds – the asset provides the portfolio with very stable cashflow.”

Resilient Outlook

Meanwhile, the outlook for 313@somerset remains bright. The mall features brands – including Pomelo Fashion and Love, Bonito – with omni-channel offerings that appeal to millennials and the younger generation.

“Singapore’s retail sector will continue to evolve, driven by changing consumer behaviours and the rise of e-commerce,” he added.

“The government’s proposed plans to rejuvenate Singapore's Orchard Road shopping belt, with the Somerset sub-precinct slated to provide more youth-oriented dining and entertainment offerings, also augurs well for us.”

While acknowledging that the COVID-19 coronavirus outbreak may impact domestic retail sales, Chow remains sanguine about 313@somerset’s performance.

“Yes, regional travel bans may affect foot traffic, but we expect the mall to stay resilient,” he said.

Retail market fundamentals also appear encouraging, with little supply expected over the next two to three years, according to data from real estate consultancy JLL. They point to a tighter vacancy environment that should support modest rental growth, Chow added.

“Our rental rates for 313@somerset are already at the bottom of the cycle, with one-third of our leases due for renewal. The remaining two-thirds will capture the annual rental escalation, and help mitigate any downside.”

Nonetheless, the REIT manager will monitor the impact of COVID-19 and if tenants seek reprieves, it will assess their needs on a case-by-case basis, he said.

And as for Milan – the fourth-largest economy in Europe and one of the continent’s top office sector destinations for investors and businesses – the investment market has remained active through 2019, with strong interest from both domestic and foreign investors for office assets, Chow noted.

“The robust take-up rates for office space led to tighter supply in 2019, and the take-up rate for this year is expected to stay healthy. We’re pretty positive on this asset, and don’t expect much downside risk ahead,” he added.

Earlier this week, Italy imposed a ban on all non-essential travel to and around the country, as well as a temporary ban of public events through 3 April 2020, in a bid to contain the coronavirus spread.

Meanwhile, acquisitions are definitely on the cards. But the REIT, which has a global mandate, isn’t focusing on any specific country or region at the moment. “The potential asset must tick the right boxes – enhance the diversification of the portfolio and deliver the best value proposition to investors,” he noted.

Key criteria include at least 80% occupancy levels, no major asset enhancement initiatives (AEIs) for two years post-acquisition, and prevailing rentals must be at or above market rates. Opportunities may also emerge in Singapore, Italy, or other gateway cities in which its sponsor, Lendlease Corporation, has a presence.

“Current market conditions – whether the office or retail sector in that geography is in an up or downturn – will also play a part,” he added.

Lendlease Corporation has a secured development pipeline of approximately A$112 billion and current funds under management of approximately A$37 billion, each of which includes retail and office assets. These may present future acquisition opportunities for the REIT.

Fully Hedged

Prudence is the watchword as macro challenges continue to abound, ranging from continuing US-Sino trade tensions to the economic fallout generated by the coronavirus epidemic, Chow noted.

Lendlease Global REIT has hedged 100% of its floating-rate debt to fixed-rate via interest rate swaps and options. To mitigate foreign currency risks, it has also substantially hedged its projected euro-denominated income for FY2020 and FY2021.

“We have also protected our cashflows – they are hedged not just for one but two years,” he added.

The REIT has a focus on delivering stable and long-term returns to investors. For example, it has obtained a euro-denominated term loan, which provides a full natural currency hedge against its euro investment in Sky Complex.

“When the euro falls, our asset values will fall in tandem, but our loan amount will also decline, which neutralises the impact on our balance sheet as well as P&amp;L,” he added, referring to the REIT’s profit and loss statement.

An added complexity, however, comes from the nature of retail malls, Chow admitted. “The challenge lies in managing our tenants’ performances and sales, as well as determining the overall mix of stores within the mall.”

“This encompasses a gamut of marketing and promotional activities, which are aimed at forging a clear identity for the mall, targeting specific shopper profiles, and could include using technology to develop apps to reward spending,” he added.

Apart from grappling with the day-to-day operational issues of the REIT, the 48-year-old is also focused on nurturing the next-generation of leaders for the real estate industry.

“REITs as an industry will continue to grow in Singapore, but where will the next-generation of talent come from?” he asked.

“The question I ask myself is: Do I see my job just as a career? Or can I create a legacy by sharing my values, experience and knowledge? The answer is obvious – it’s the latter.”

Lendlease Global Commercial REIT

Listed on SGX on 2 October 2019, Lendlease Global Commercial REIT is established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally, which are used primarily for retail and/or office purposes. Its initial portfolio comprises a leasehold interest in, 313@somerset, a retail property located in Singapore, and a freehold interest in Sky Complex, which comprises three office buildings located in Milan. The portfolio has a total net lettable area of approximately 1.3 million square feet, with an appraised value of S$1.4 billion. LREIT is managed by Lendlease Global Commercial Trust Management Pte. Ltd, an indirect wholly owned subsidiary of the sponsor, Lendlease Corporation Ltd.

The company website is: <a href="http://www.lendleaseglobalcommercialreit.com">www.lendleaseglobalcommercialreit.com</a>. 
Click <a href="https://www2.sgx.com/securities/equities/JYEU">here</a> for the company's StockFacts page. 
For financial results from 2 Oct 2019 to 31 Dec 2019, click <a href="https://links.sgx.com/FileOpen/2QFY2020%20Results%20Press%20Release%20-%20Final..ashx?App=Announcement&amp;FileID=595729">here</a>.
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    Lendlease 


With more than two decades of industry experience under his belt, Kelvin Chow has come to appreciate the convergence of art and science in real estate.

“Traditionally, in the area of lease management, the key requirement was just to lease the property out, get a good price, and manage its risks,” said the Chief Executive Officer of the manager of SGX-listed Lendlease Global Commercial REIT.

“But in this day and age, just focusing on the science of the transaction is not enough – there’s an art to it as well, such as finding creative ways to manage an asset, understanding the surrounding demographics, and getting the right tenant mix for the target market.”

Chow, who keeps a notebook by his pillow to jot down ideas that pop into his head during the wee hours, finds his greatest satisfaction in instances when he is able to generate value.

“What inspires me most is solving problems and unlocking potential – improving the REIT’s value proposition, such as boosting cashflow and yields, as well as managing disruptors,” he added.

Chow, who holds a Master of Business Administration from Universitas 21 Global, and is a Fellow of the Association of Chartered Certified Accountants, was appointed CEO of the manager of Lendlease Global REIT in 2019.

Prior to this appointment, he was the Managing Director of Investment Management in Asia in 2018, overseeing the asset management function and performance of the Asia funds platform.

Before joining Lendlease, he held senior financial management roles with Keppel REIT, Soilbuild Business Space REIT and then-Cambridge Industrial Trust, now called ESR-REIT.

Listed on SGX Mainboard on 2 October 2019, Lendlease Global REIT has the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally, and used primarily for retail and/or office purposes. Its initial portfolio comprises a leasehold interest in the Lendlease-developed 313@somerset retail property in Singapore, and a freehold interest in Milan’s Sky Complex that consists of three Grade A freehold office buildings. The portfolio has a total net lettable area of approximately 1.3 million square feet, with an appraised value of S$1.4 billion.

The REIT is managed by Lendlease Global Commercial Trust Management Pte Ltd, an indirect, wholly owned subsidiary of the sponsor, Lendlease Corporation Ltd. The latter is part of the Lendlease Group – an international property and infrastructure group established in 1958 and headquartered in Sydney. Listed on the Australian Securities Exchange, the Group has operations spanning Australia, Asia, Europe and the Americas.

Enhancing Performance

To generate growth, Lendlease Global REIT has adopted a three-pronged strategy – proactive asset management, investments and acquisition growth, as well as prudent capital management.

“We want to drive the performance of our existing assets, enhance our portfolio through suitable acquisitions, and manage our financing to maximise returns to unitholders,” Chow said.

For the REIT’s prime retail asset in Singapore – 313@somerset – which has developed as a differentiated lifestyle destination mall, one focus is maintaining a robust relationship with its high-quality, well-diversified base of tenants.

Leases in the mall are typically structured with three-year tenures, comprising base rent and turnover rent, which is calculated as a percentage of tenants’ gross turnover, with an average rental escalation of 3%.

The REIT is also exploring how to unlock further value for unitholders after the permissible plot ratio for 313@somerset was raised under the Urban Redevelopment Authority’s (URA) Master Plan 2019, resulting in a potential increase of up to 1,008 square metres of space based on its current gross floor area utilisation.

“We’re conducting feasibility studies on what will generate the highest cashflow possible, such as identifying specific floors in the mall where we can increase footfall or traffic,” he added.

Over in Milan, Sky Complex comprises about a third of Lendlease Global REIT’s IPO portfolio based on its appraised value. It consists of three Grade A, freehold office buildings located in one of the city’s newest and most vibrant office precincts – Milano Santa Giula.

It is 100% leased to Sky Italia, an Italian satellite television platform owned by Comcast Corporation, the world’s largest broadcasting and cable TV company by revenue. The single lease runs until 2032, with a break option in 2026.

“There is no retail component in Sky Complex. This tenant is ranked number one in the broadcasting industry, while the lease has a rental step-up clause that tracks the Italian National Institute of Statistics’ Consumer Price Index variation, and features a triple net structure whereby the tenant is generally responsible for the operating expenses of the property,” Chow said.

“It’s like owning AAA-rated bonds – the asset provides the portfolio with very stable cashflow.”

Resilient Outlook

Meanwhile, the outlook for 313@somerset remains bright. The mall features brands – including Pomelo Fashion and Love, Bonito – with omni-channel offerings that appeal to millennials and the younger generation.

“Singapore’s retail sector will continue to evolve, driven by changing consumer behaviours and the rise of e-commerce,” he added.

“The government’s proposed plans to rejuvenate Singapore's Orchard Road shopping belt, with the Somerset sub-precinct slated to provide more youth-oriented dining and entertainment offerings, also augurs well for us.”

While acknowledging that the COVID-19 coronavirus outbreak may impact domestic retail sales, Chow remains sanguine about 313@somerset’s performance.

“Yes, regional travel bans may affect foot traffic, but we expect the mall to stay resilient,” he said.

Retail market fundamentals also appear encouraging, with little supply expected over the next two to three years, according to data from real estate consultancy JLL. They point to a tighter vacancy environment that should support modest rental growth, Chow added.

“Our rental rates for 313@somerset are already at the bottom of the cycle, with one-third of our leases due for renewal. The remaining two-thirds will capture the annual rental escalation, and help mitigate any downside.”

Nonetheless, the REIT manager will monitor the impact of COVID-19 and if tenants seek reprieves, it will assess their needs on a case-by-case basis, he said.

And as for Milan – the fourth-largest economy in Europe and one of the continent’s top office sector destinations for investors and businesses – the investment market has remained active through 2019, with strong interest from both domestic and foreign investors for office assets, Chow noted.

“The robust take-up rates for office space led to tighter supply in 2019, and the take-up rate for this year is expected to stay healthy. We’re pretty positive on this asset, and don’t expect much downside risk ahead,” he added.

Earlier this week, Italy imposed a ban on all non-essential travel to and around the country, as well as a temporary ban of public events through 3 April 2020, in a bid to contain the coronavirus spread.

Meanwhile, acquisitions are definitely on the cards. But the REIT, which has a global mandate, isn’t focusing on any specific country or region at the moment. “The potential asset must tick the right boxes – enhance the diversification of the portfolio and deliver the best value proposition to investors,” he noted.

Key criteria include at least 80% occupancy levels, no major asset enhancement initiatives (AEIs) for two years post-acquisition, and prevailing rentals must be at or above market rates. Opportunities may also emerge in Singapore, Italy, or other gateway cities in which its sponsor, Lendlease Corporation, has a presence.

“Current market conditions – whether the office or retail sector in that geography is in an up or downturn – will also play a part,” he added.

Lendlease Corporation has a secured development pipeline of approximately A$112 billion and current funds under management of approximately A$37 billion, each of which includes retail and office assets. These may present future acquisition opportunities for the REIT.

Fully Hedged

Prudence is the watchword as macro challenges continue to abound, ranging from continuing US-Sino trade tensions to the economic fallout generated by the coronavirus epidemic, Chow noted.

Lendlease Global REIT has hedged 100% of its floating-rate debt to fixed-rate via interest rate swaps and options. To mitigate foreign currency risks, it has also substantially hedged its projected euro-denominated income for FY2020 and FY2021.

“We have also protected our cashflows – they are hedged not just for one but two years,” he added.

The REIT has a focus on delivering stable and long-term returns to investors. For example, it has obtained a euro-denominated term loan, which provides a full natural currency hedge against its euro investment in Sky Complex.

“When the euro falls, our asset values will fall in tandem, but our loan amount will also decline, which neutralises the impact on our balance sheet as well as P&amp;L,” he added, referring to the REIT’s profit and loss statement.

An added complexity, however, comes from the nature of retail malls, Chow admitted. “The challenge lies in managing our tenants’ performances and sales, as well as determining the overall mix of stores within the mall.”

“This encompasses a gamut of marketing and promotional activities, which are aimed at forging a clear identity for the mall, targeting specific shopper profiles, and could include using technology to develop apps to reward spending,” he added.

Apart from grappling with the day-to-day operational issues of the REIT, the 48-year-old is also focused on nurturing the next-generation of leaders for the real estate industry.

“REITs as an industry will continue to grow in Singapore, but where will the next-generation of talent come from?” he asked.

“The question I ask myself is: Do I see my job just as a career? Or can I create a legacy by sharing my values, experience and knowledge? The answer is obvious – it’s the latter.”

Lendlease Global Commercial REIT

Listed on SGX on 2 October 2019, Lendlease Global Commercial REIT is established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally, which are used primarily for retail and/or office purposes. Its initial portfolio comprises a leasehold interest in, 313@somerset, a retail property located in Singapore, and a freehold interest in Sky Complex, which comprises three office buildings located in Milan. The portfolio has a total net lettable area of approximately 1.3 million square feet, with an appraised value of S$1.4 billion. LREIT is managed by Lendlease Global Commercial Trust Management Pte. Ltd, an indirect wholly owned subsidiary of the sponsor, Lendlease Corporation Ltd.

The company website is: www.lendleaseglobalcommercialreit.com.  
Click here for the company's StockFacts page.  
For financial results from 2 Oct 2019 to 31 Dec 2019, click here.



Lendlease Global REIT: Unlocking Value, Driving Growth

CapitaLand Ascendas REIT / Equity Bottom-Up

SGX is one of Asia’s regional hub for Real Estate Investment Trusts (REITs) &amp; Property Trusts. Based on the FTSE ST REIT Index, the dividend yield for Singapore REITs have been 4.2 – 6.8% over a period of 5 years (Source: Bloomberg, 2014-2018). Over 80% of Singapore REITs &amp; Property Trusts own offshore assets across Asia Pacific, US &amp; Europe.&nbsp;
As of end Sep 2019, SGX lists 44 REITs &amp; Property Trusts with a combined market capitalisation of over S$100 billion, representing c.12% of Singapore’s overall market
SGX’s REITs &amp; Property Trusts offer wide diversity across property sub-segments REIT Indices:
<ul>
<li>FTSE ST REIT Index: 37 out of the 44 trusts represented</li>
<li>iEdge S-REIT Index: 36 out of the 44 trusts represented</li>
</ul>
<h2>Key Statistics At a Glance</h2>
<ul>
<li>Average dividend yield of 6.2%</li>
<li>Average 3-year annualised total return of 10.8%</li>
<li>Average gearing ratio of 34.5%</li>
<li>10 year market cap CAGR of 22%</li>
</ul>

SGX is one of Asia’s regional hub for Real Estate Investment Trusts (REITs) &amp; Property Trusts. Based on the FTSE ST REIT Index, the dividend yield for Singapore REITs have been 4.2 – 6.8% over a period of 5 years (Source: Bloomberg, 2014-2018). Over 80% of Singapore REITs &amp; Property Trusts own offshore assets across Asia Pacific, US &amp; Europe.&nbsp;
As of end Sep 2019, SGX lists 44 REITs &amp; Property Trusts with a combined market capitalisation of over S$100 billion, representing c.12% of Singapore’s overall market
SGX’s REITs &amp; Property Trusts offer wide diversity across property sub-segments REIT Indices:

FTSE ST REIT Index: 37 out of the 44 trusts represented
iEdge S-REIT Index: 36 out of the 44 trusts represented

Key Statistics At a Glance

Average dividend yield of 6.2%
Average 3-year annualised total return of 10.8%
Average gearing ratio of 34.5%
10 year market cap CAGR of 22%


Chartbook: SREITs & Property Trusts -  October 2019

Singapore

ESR-LOGOS Real Estate Investment Trust (“ESR-LOGOS REIT”) is a leading New Economy and future-ready Asia Pacific S-REIT. Listed on the Singapore Exchange Securities Trading Limited since 25 July 2006, ESR-LOGOS REIT invests in quality income-producing industrial properties in key gateway markets.

As at 28 April 2022, ESR-LOGOS REIT holds interests in a diversified portfolio of logistics properties, high-specifications industrial properties, business parks and general industrial properties with total assets of approximately S$5.5 billion. Its portfolio comprises 84 properties located across the developed markets of Singapore (63 assets) and Australia (21 assets), with a total gross floor area of approximately 2.4 million sqm, as well as investments in three property funds in Australia. ESR-LOGOS REIT is also a constituent of the FTSE EPRA Nareit Global Real Estate Index. 

ESR-LOGOS REIT is managed by ESR-LOGOS Funds Management (S) Limited (the “Manager”) and sponsored by the ESR Group (“ESR”). The Manager is owned by ESR (67.3%), Shanghai Summit Pte. Ltd. (25.0%), and Mitsui & Co., Ltd (7.7%), respectively.

For further information on ESR-LOGOS REIT, please visit www.esr-logosreit.com.sg.

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ESR-LOGOS REIT (EREIT SP)

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