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

Manulife US REIT (MUST) / Equity Bottom-Up






Data for office markets in Europe and the United States (US) are indicating potential signs of recovery. European office occupier activity remains robust and rents resilient in Q1 2022, and Q4 2021 recorded the strongest quarterly leasing volume since Q4 2018 driven by pent-up demand (Knight Frank, Savills).

Meanwhile in the US, leasing activity rose 5.4 per cent over Q1 2022, marking the fifth consecutive quarter of improved tenant demand, according to JLL.

There are 6 S-Reits with pure Europe and US office properties: Cromwell European Reit : CWBU 0%, IReit Global : 8U7U 0%, and Elite Commercial Reit : MXNU 0% have pure Europe office assets, while Manulife US Reit : BTOU 0%, Prime US Reit : OXMU 0%, and Keppel Pacific Oak US Reit : CMOU 0% have pure US office assets.

Cromwell European Reit reported 94.8 per cent in overall portfolio occupancy and 4.2 per cent positive rent reversion.

Its office portfolio registered positive rent reversion of 1.6 per cent, from several lease renewals and smaller new leases in Italy, France, and Finland. It noted that the preference in Europe trends towards shorter lease durations and flexible leases, while nascent recovery has been tempered by the Ukraine-Russia war which has reduced appetite for office expansions in Finland and Poland.

IReit Global reported an unchanged portfolio occupancy at 95.7 per cent as at Mar 31, 2022. It expects its portfolio to remain resilient, supported by a blue-chip tenant mix and diversified asset base.

IReit will continue to focus on asset management to maintain occupancy and long-term attractiveness through sustainability initiatives.

Elite Commercial Reit reported a 36.2 per cent year-on-year growth in Q1 2022 distributable income, driven by its maiden portfolio acquisition and tax savings as a UK Reit group. It achieved positive outcome from its major lease re-gearing exercise, removing lease break options from 109 assets (set to occur in March 2023).

It received notice to exercise break options for 8 of remaining 9 Department for Work and Pensions (DWP)-occupied assets and will actively manage these. The Reit’s portfolio remains fully occupied as of Mar 31, 2022.

Manulife US Reit reported 3.9 per cent positive rent reversion and portfolio occupancy of 91.7 per cent in Q1 2022, above US Class A average (83 per cent). It noted that employment in most office-using sectors are above pre-Covid-19 levels, led by professional services, information, and financial activities.

Prime US Reit continued to observe stronger leasing activity for Q1 2022, which more than doubled year on year, and positive rent reversion of 3.4 per cent.

Rent reversions over the last 7 quarters have consistently remained positive. It noted that portfolio rents are below asking rents by 6.0 per cent, reflecting the continued potential for rent reversion.

Parking revenue also increased by over 30 per cent as more return to offices in Q1 2022.

Keppel Pacific Oak US Reit reported 2.4 per cent positive rent reversion for Q1 2022 with zero rent deferment requests. It noted new leading demand and expansions from professional services, finance and insurance, TAMI (technology, advertising, media, information), and medical and healthcare. It noted that tenants appear to have long-term confidence in the office market as more companies expand footprints. 

REIT Watch is a weekly column on The Business Times, read the original version



REIT Watch - Signs of an inflection point for S-Reits with Europe, US office assets

Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Headquartered in Singapore, SooChow CSSD Capital Markets (Asia) is an investment bank focusing on emerging growth companies across Asia, providing a full suite of investment banking services, including corporate finance, mergers and acquisitions advisory, equity capital markets, institutional equities sales and trading and equities research.

SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

<ul><li><a href="https://www.smartkarma.com/entities/ireit-global" target="_blank" data-smartkarma-citation="entities:10596" rel="noopener">IREIT Global (IREIT SP)</a> clinches a six-year lease extension at Bonn Campus</li><li><a href="https://www.smartkarma.com/entities/frasers-centrepoint-trust" target="_blank" data-smartkarma-citation="entities:2870" rel="noopener">Frasers Centrepoint Trust (FCT SP)</a> YTD22 tenants’ sales surpassed pre-Covid levels</li><li>New private home sales remained flattish MoM in Apr22; Take-up rate fell further to ~164%</li></ul>

IREIT Global (IREIT SP) clinches a six-year lease extension at Bonn CampusFrasers Centrepoint Trust (FCT SP) YTD22 tenants’ sales surpassed pre-Covid levelsNew private home sales remained flattish MoM in Apr22; Take-up rate fell further to ~164%

ASEAN Builder's Scoop (18May22) - IREIT Lease Extension at Bonn Campus

<ul><li><a href="https://www.smartkarma.com/entities/capitaland-investment-ltd-si" target="_blank" data-smartkarma-citation="entities:33774" rel="noopener">CapitaLand Investment (CLI SP)</a> 1Q22 Business Updates – FUM flat QoQ but lodging business picking up the slacks</li><li><a href="https://www.smartkarma.com/entities/sasseur-reit" target="_blank" data-smartkarma-citation="entities:26807" rel="noopener">Sasseur REIT (SASSR SP)</a> 1Q22 DPU +3.6% YoY; Weathering the storm with robust occupancy</li><li><a href="https://www.smartkarma.com/entities/bhg-retail-reit" target="_blank" data-smartkarma-citation="entities:21021" rel="noopener">BHG Retail REIT (BHGREIT SP)</a> 1Q22 Business Updates – Steady and robust occupancy</li></ul>

CapitaLand Investment (CLI SP) 1Q22 Business Updates – FUM flat QoQ but lodging business picking up the slacksSasseur REIT (SASSR SP) 1Q22 DPU +3.6% YoY; Weathering the storm with robust occupancyBHG Retail REIT (BHGREIT SP) 1Q22 Business Updates – Steady and robust occupancy

ASEAN Builder's Scoop (12May22) - CLI Flat FUM but Lodging Picking Up

<ul><li><a href="https://www.smartkarma.com/entities/elite-commercial-reit" target="_blank" data-smartkarma-citation="entities:28807" rel="noopener">Elite Commercial REIT (ELITE SP)</a> secures Sustainability Collaboration with another tenant and removes lease break option</li><li><a href="https://www.smartkarma.com/entities/ireit-global" target="_blank" data-smartkarma-citation="entities:10596" rel="noopener">IREIT Global (IREIT SP)</a> secures lease extension at Bonn Campus</li><li><a href="https://www.smartkarma.com/entities/lendlease-global-commercial-reit" target="_blank" data-smartkarma-citation="entities:28292" rel="noopener">Lendlease Global Commercial REIT (LREIT SP)</a> preferential offering saw 1.4 times oversubscription</li></ul>

Elite Commercial REIT (ELITE SP) secures Sustainability Collaboration with another tenant and removes lease break optionIREIT Global (IREIT SP) secures lease extension at Bonn CampusLendlease Global Commercial REIT (LREIT SP) preferential offering saw 1.4 times oversubscription

ASEAN Builder's Scoop (18Apr22) - ELITE Removes Another Lease-Break Option

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The iEdge S-Reit Index declined 3 per cent in total returns in 2022 year to date (YTD), amid geopolitical escalations, macro uncertainty and increasing expectations of a potential rate hike.

Despite the decline, it remained one of the most defensive Reit indices globally, with the FTSE EPRA Nareit Developed Index declining 7 per cent during the same period.

Interest rates have always been a key driver for the sector, given the impact on yield spreads and borrowing costs. 
S-Reits have been actively managing their interest rate exposures.

On average, close to 75 per cent of S-Reits' current debts are entered directly in fixed rates or hedged through floating-to-fixed interest rate swaps.

S-Reits currently have an average gearing ratio of 37.4 per cent, based on latest company filings, well below the regulatory threshold of 50 per cent. 
This translates into approximately S$24.6 billion (based on Bloomberg data for total assets multiplied by company-reported gearing ratio) of potential debt headroom for the sector, to fund capital-intensive acquisitions. 
The five S-REITs that maintain the lowest gearing ratios are Sasseur REIT, Digital Core REIT, SPH REIT, IREIT Global and Lendlease Global Commercial REIT. Sasseur REIT reported a gearing of 26.1 per cent as of 31 Dec 2021, lowest amongst all S-REITs. 
The Reit noted that this demonstrated strong fundamentals of the portfolio as well as prudent capital management, with an expanded debt headroom to pursue potential acquisition opportunities.

With an average debt maturity of 1.2 years as at Dec 31, 2021, the Reit is actively exploring refinancing opportunities with a view to de-risk the current debt profile by staggering its debt maturity and amount.

Sasseur Reit posted FY2021 distribution per unit (DPU) of 7.104 Singapore cents, up 8.5 per cent year on year. The Reit's 4 outlets in China recorded total sales of almost 4.2 billion yuan in FY2021, representing a growth of 12.3 per cent year on year.

The Reit also observed continued robust consumption trends in the cities where its outlets are located, coupled with intensive promotional efforts in close collaboration with tenants which led to the higher sales.

Listed in 2021, Digital Core Reit is a pure-play data centre Reit with an initial public offering (IPO) portfolio of 10 quality freehold data centres located across the United States and Canada.

The Reit reported a gearing of 27 per cent as at IPO, noting ample debt headroom and potential to fuel outsized growth prospects.

In its FY2021 financial release, SPH Reit reported a gearing of 30.3 per cent with revolving credit facility lines of S$225 million undrawn as at Aug 31, 2021, providing ample debt headroom and additional liquidity if needed.

The Reit noted that its loans were refinanced in FY2021 at a lower interest rate, resulting in lower average cost of debt of 1.84 per cent, compared to 2.66 per cent in FY2020.

As at Nov 30, 2022, the Reit's average cost of debt is at 1.68 per cent and has a weighted average term to maturity of 2.7 years.  REIT Watch is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/green-shoots-for-retail-and-hospitality-s-reits-amid-new-pandemic-phase"> </a><a href="https://www.businesstimes.com.sg/companies-markets/s-reits-hedge-against-rising-interest-rates-0">read </a>the original version.
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    5 sreits with lower gearing ratios


The iEdge S-Reit Index declined 3 per cent in total returns in 2022 year to date (YTD), amid geopolitical escalations, macro uncertainty and increasing expectations of a potential rate hike.

Despite the decline, it remained one of the most defensive Reit indices globally, with the FTSE EPRA Nareit Developed Index declining 7 per cent during the same period.

Interest rates have always been a key driver for the sector, given the impact on yield spreads and borrowing costs.  
S-Reits have been actively managing their interest rate exposures.

On average, close to 75 per cent of S-Reits' current debts are entered directly in fixed rates or hedged through floating-to-fixed interest rate swaps.

S-Reits currently have an average gearing ratio of 37.4 per cent, based on latest company filings, well below the regulatory threshold of 50 per cent.  
This translates into approximately S$24.6 billion (based on Bloomberg data for total assets multiplied by company-reported gearing ratio) of potential debt headroom for the sector, to fund capital-intensive acquisitions.  
The five S-REITs that maintain the lowest gearing ratios are Sasseur REIT, Digital Core REIT, SPH REIT, IREIT Global and Lendlease Global Commercial REIT. Sasseur REIT reported a gearing of 26.1 per cent as of 31 Dec 2021, lowest amongst all S-REITs.  
The Reit noted that this demonstrated strong fundamentals of the portfolio as well as prudent capital management, with an expanded debt headroom to pursue potential acquisition opportunities.

With an average debt maturity of 1.2 years as at Dec 31, 2021, the Reit is actively exploring refinancing opportunities with a view to de-risk the current debt profile by staggering its debt maturity and amount.

Sasseur Reit posted FY2021 distribution per unit (DPU) of 7.104 Singapore cents, up 8.5 per cent year on year. The Reit's 4 outlets in China recorded total sales of almost 4.2 billion yuan in FY2021, representing a growth of 12.3 per cent year on year.

The Reit also observed continued robust consumption trends in the cities where its outlets are located, coupled with intensive promotional efforts in close collaboration with tenants which led to the higher sales.

Listed in 2021, Digital Core Reit is a pure-play data centre Reit with an initial public offering (IPO) portfolio of 10 quality freehold data centres located across the United States and Canada.

The Reit reported a gearing of 27 per cent as at IPO, noting ample debt headroom and potential to fuel outsized growth prospects.

In its FY2021 financial release, SPH Reit reported a gearing of 30.3 per cent with revolving credit facility lines of S$225 million undrawn as at Aug 31, 2021, providing ample debt headroom and additional liquidity if needed.

The Reit noted that its loans were refinanced in FY2021 at a lower interest rate, resulting in lower average cost of debt of 1.84 per cent, compared to 2.66 per cent in FY2020.

As at Nov 30, 2022, the Reit's average cost of debt is at 1.68 per cent and has a weighted average term to maturity of 2.7 years.   REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - S-Reits hedge against rising interest rates

Singapore

IREIT Global is the first Singapore-listed real estate investment trust with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office, retail and industrial (including logistics) purposes, as well as real estate-related assets.

IREIT Global’s current portfolio comprises 5 freehold office properties in Germany, 5 freehold office properties in Spain and 27 freehold retail properties in France, with a total lettable area of approximately 384,000 sqm and a portfolio valuation of approximately €974.9 million.

IREIT Global is managed by IREIT Global Group Pte. Ltd., which is jointly owned by Tikehau Capital and City Developments Limited ("CDL"). Tikehau Capital is a global alternative asset management group listed in France, while CDL is a leading global real estate company listed in Singapore.

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IREIT Global (IREIT SP)

REIT Watch - Signs of an inflection point for S-Reits with Europe, US office assets

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Singapore Exchange Ltd (SGX)

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SCCM Asia Research

REIT Watch - S-Reits hedge against rising interest rates

The iEdge S-Reit Index declined 3 per cent in total returns in 2022 year to date (YTD), amid geopolitical escalations, macro...

Singapore Exchange Ltd (SGX)

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