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.

Asia’s leading multi-asset exchange

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

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

Keppel Pacific Oak US REIT / Equity Bottom-Up

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<ul>
<li>
Of the REITs listed on SGX, the three largest REITs with 100% US assets are Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT, with all three focused on the office market. 
	 </li>
	<li>
For 1H2020, these three US-focused REITs averaged a DPU of 3.22 US cents, up an average 2.9% YoY, and a net property income of US$50.5 million, up 14% YoY. Prime US REIT, which made its trading debut in July 2019, reported the highest DPU of 3.52 US cents, up 5.1% from its IPO forecast. 
	 </li>
	<li>As of 30 June 2020, the trio averaged an aggregate leverage ratio of 36.5%, versus 36.1% as at 31 Dec 2019. Manulife US REIT had the highest aggregate leverage ratio of 39.1%, while Prime US REIT had the lowest gearing of 33.0%. </li>
</ul>
 

Of the REITs listed on SGX, the three largest REITs with 100% US assets are Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT, with all three focused on the office market. Over the last three weeks, the trio reported their results for the first half ended 30 June 2020. DPU Highlights 
For the six months ended 30 June 2020, the three largest US-focused REITs averaged a distribution per unit (DPU) of 3.22 US cents, up an average 2.9% YoY, and a net property income of US$50.5 million, up 14% YoY. Prime US REIT, which made its trading debut in July 2019, reported the highest DPU of 3.52 US cents, up 5.1% from its IPO forecast.

<table class="table table-striped"><tbody>
<tr>
<td>
			Name
			</td>
			<td>
			DPU (US cts)
			</td>
			<td>
			YoY Chg (%)
			</td>
			<td>
			Net Property Income (US$M)
			</td>
			<td>
			YoY Chg (%)
			</td>
			<td>
			Gross Revenue (US$M)
			</td>
			<td>
			YoY Chg (%)
			</td>
		</tr>
<tr>
<td>
			MANULIFE US REIT
			</td>
			<td>
			3.05
			</td>
			<td>
			0.3
			</td>
			<td>
			62.2
			</td>
			<td>
			18.8
			</td>
			<td>
			98.6
			</td>
			<td>
			18.3
			</td>
		</tr>
<tr>
<td>
			PRIME US REIT
			</td>
			<td>
			3.52
			</td>
			<td>
			5.1^
			</td>
			<td>
			47.5
			</td>
			<td>
			7.6^
			</td>
			<td>
			NA
			</td>
			<td>
			NA
			</td>
		</tr>
<tr>
<td>
			KEPPEL PACIFIC OAK US REIT
			</td>
			<td>
			3.10
			</td>
			<td>
			3.3
			</td>
			<td>
			41.9
			</td>
			<td>
			15.7
			</td>
			<td>
			70.5
			</td>
			<td>
			20.1
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			3.22
			</td>
			<td>
			2.9
			</td>
			<td>
			50.5
			</td>
			<td>
			14.0
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
		</tr>
</tbody></table>
 Source: Company data

^% change computed against IPO Forecast, as trading debut was 19 July 2019

 

Debt Profiles

 
As of 30 June 2020, the trio averaged an aggregate leverage ratio of 36.5%, versus 36.1% as at 31 December 2019. Manulife US REIT had the highest aggregate leverage ratio of 39.1%, while Prime US REIT had the lowest gearing of 33.0%. Interest cover for the trio averaged 4.5 times in the June quarter, versus 4.7 times in the December quarter. Prime US REIT had the highest interest coverage ratio of 5.4 times, followed by Keppel Pacific Oak US REIT at 4.4 times.

<table class="table table-striped"><tbody>
<tr>
<td>
			Name
			</td>
			<td>
			Aggregate Leverage Ratio (%) as at 30 June 2020
			</td>
			<td>
			Aggregate Leverage Ratio (%) as at 31 Dec 2019
			</td>
			<td>
			Interest Coverage Ratio (x) as at 30 June 2020
			</td>
			<td>
			Interest Coverage Ratio (x) as at 31 Dec 2019
			</td>
		</tr>
<tr>
<td>
			MANULIFE US REIT
			</td>
			<td>
			39.1
			</td>
			<td>
			37.7
			</td>
			<td>
			3.8
			</td>
			<td>
			3.8
			</td>
		</tr>
<tr>
<td>
			PRIME US REIT
			</td>
			<td>
			33.0
			</td>
			<td>
			33.7
			</td>
			<td>
			5.4
			</td>
			<td>
			5.1
			</td>
		</tr>
<tr>
<td>
			KEPPEL PACIFIC OAK US REIT
			</td>
			<td>
			37.4
			</td>
			<td>
			36.9
			</td>
			<td>
			4.4
			</td>
			<td>
			4.8
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			36.5
			</td>
			<td>
			36.1
			</td>
			<td>
			4.5
			</td>
			<td>
			4.7
			</td>
		</tr>
</tbody></table>
 Source: Company data 
*No YoY performance data available as listing date was 19 July 2019

 Outlook 
Manulife US REIT

<ul>
<li>High 2H 2020 rental collections expected with majority top-quality tenants from finance, legal, tech, government and healthcare</li>
	<li>Adopting proactive leasing strategies:</li>
</ul>
<ul>
<li>Conduct virtual tours, target resilient tech and healthcare sectors</li>
	<li>Work to maximise tenants’ leasing plans e.g. accommodate social distancing</li>
</ul>
<ul>
<li>Seek yield accretive acquisitions in cities with strong demographic, high-growth sectors while maintaining diversification</li>
	<li>Mitigated near-term interest rate risk with 92.7% of outstanding loans on a fixed rate basis, resulting in a weighted average interest rate of 3.26% and weighted average debt maturity of 2.3 years</li>
</ul>
<ul>
<li>On 9 July 2020, US$95.1 million of loans due 2020 were refinanced, including Peachtree’s US$73.1 million loan, via a Trust-level green loan of US$100.0 million due in 2025</li>
	<li>Following expiry of a US$10.0 million committed revolving credit facility on 14 July 2020, the REIT has obtained a US$50.0 million committed revolving credit facility on 23 July 2020 for general corporate and working capital purposes</li>
</ul>
<ul>
<li>Despite employers adopting WFH practices globally to combat the pandemic, the Manager expects minimal impact on its portfolio for the following reasons:
	<ul>
<li>Urban suburban likely to outperform gateway CBD in near-term</li>
		<li>Limited supply in foreseeable future</li>
		<li>WFH established in US for decades</li>
		<li>De-densification creates additional space</li>
	</ul>
</li>
	<li>Potential faster US recovery from COVID-19 vs Global Financial Crisis
	<ul>
<li>Economic disruption mitigated due to massive fiscal and monetary stimulus</li>
		<li>Bigger COVID-19 relief package of ~US$3.5 trillion vs US$0.7 trillion GFC package</li>
		<li>Compared to GFC:
		<ul>
<li>Banks better equipped to maintain market liquidity due to stress testing requirements</li>
			<li>Commercial real estate less levered</li>
			<li>Less over-supply of inventory</li>
			<li>About 90% of US office leases longer than two years to weather short-term impact</li>
			<li>Rents and occupancy expected to rebound post COVID-19 with positive net absorption and net deliveries</li>
		</ul>
</li>
	</ul>
</li>
</ul>
 Click <a href="https://links.sgx.com/1.0.0/corporate-announcements/OTE3DQH0S83CH546/Manulife%20US%20REIT%201H%202020%20Financial%20Results%20Press%20Release.pdf">here</a> for the full results release

 

Prime US REIT

<ul>
<li>Continues to retain a well-staggered debt maturity profile and a conservative gearing ratio of 33.0% as at 30 June 2020, providing ample debt headroom and liquidity
	<ul>
<li>Has fixed interest rates on 90% of its total borrowings of US$478.8 million and fully extended debt maturity of 5.1 years, mitigating against near-term interest rate and refinancing risks</li>
		<li>Following the restructuring of interest rate swaps in April 2020, effective interest rate as at 30 June 2020 decreased to 2.6%</li>
	</ul>
</li>
	<li>The US office market has remained relatively resilient in 1H 2020 with only 4 million office-using jobs lost according to Oxford Economics, compared to the more than 40 million jobless claims filed since mid-March
	<ul>
<li>According to Green Street Advisors, June marked the largest single-month payroll gain in US history with the addition of 4.8 million new jobs, and was the second month in a row that far exceeded expectations</li>
	</ul>
</li>
</ul>
<ul>
<li>Established professional and financial services sectors have continued to provide a stable demand base; growing technological sectors are expected to drive demand for office space to create shared spaces for employees to foster a culture of collaboration and innovation</li>
	<li>Notable companies such as Microsoft are expanding in higher profile submarkets such as Midtown Atlanta and Reston Virginia (Washington D.C.), two markets where the REIT has assets</li>
	<li>According to a CBRE Global Occupier Sentiment Survey, while a more flexible work environment is important, the physical office remains an important function, with 60% of participants pursuing renewals and optimising their portfolios, and 70% confident in setting long-term real estate strategies</li>
	<li>There is also growing interest in de-densification over the short term, which sees firms spreading out employees to create less dense environments</li>
	<li>Over the long term, current footprint sizes are likely to remain steady, balancing the relaxation of space density with potentially less office-based headcount</li>
	<li>The REIT’s well-diversified portfolio is exposed to strategic markets that continue to attract large corporations but have little to no new office supply</li>
</ul>
 Click <a href="https://links.sgx.com/1.0.0/corporate-announcements/78VW21F2D3VK7RPM/PRIME%201H%202020%20Press%20Release%20200806.pdf">here</a> for the full results release.

 

Keppel Pacific Oak US REIT

<ul>
<li>In July 2020, the Manager obtained a loan facility for the early refinancing of the REIT’s borrowings that were due in November 2021 – these were loans obtained during its IPO in November 2017
	<ul>
<li>Interest rate swaps related to these borrowings were also restructured; with this, the REIT will have no long-term debt refinancing requirements until November 2022</li>
		<li>All borrowings are USD-denominated and 100% unsecured, providing the REIT funding flexibility as it continues to pursue long-term growth</li>
		<li>The Manager continues to limit interest rate exposure with floating-to-fixed interest rate swaps; as at 30 June 2020, 84.3% of the REIT’s non-current loans have been hedged</li>
	</ul>
</li>
	<li>The Manager remains cautiously optimistic of leasing performance in its key growth markets and is focused on its long-term goal of delivering stable distributions and strong total returns for unit holders</li>
	<li>The Manager’s continued prudent approach towards capital management and its proactive leasing efforts will also see the REIT capture rental escalations and positive rental reversions as leases expire</li>
	<li>As businesses re-evaluate their space needs and some move toward decentralising their workforce, its suburban office buildings and business campuses are well-positioned to benefit from this potential shift away from downtown, CBD locations</li>
	<li>Its distinct portfolio of office towers and business campuses also lends itself well to the additional space requirements as businesses de-densify</li>
	<li>The REIT’s strategic exposure to the historically fast-expanding tech hubs provides further income resilience as businesses accelerate their digital transformation strategies driven by COVID-19</li>
</ul>
Click <a href="https://links.sgx.com/1.0.0/corporate-announcements/3TP8YRFPHFHZDTYL/KORE%201H20%20results.pdf">here</a> for the full results release
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Of the REITs listed on SGX, the three largest REITs with 100% US assets are Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT, with all three focused on the office market.  
	 
	
For 1H2020, these three US-focused REITs averaged a DPU of 3.22 US cents, up an average 2.9% YoY, and a net property income of US$50.5 million, up 14% YoY. Prime US REIT, which made its trading debut in July 2019, reported the highest DPU of 3.52 US cents, up 5.1% from its IPO forecast. 
	 
	As of 30 June 2020, the trio averaged an aggregate leverage ratio of 36.5%, versus 36.1% as at 31 Dec 2019. Manulife US REIT had the highest aggregate leverage ratio of 39.1%, while Prime US REIT had the lowest gearing of 33.0%. 

 

Of the REITs listed on SGX, the three largest REITs with 100% US assets are Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT, with all three focused on the office market. Over the last three weeks, the trio reported their results for the first half ended 30 June 2020.  DPU Highlights  
For the six months ended 30 June 2020, the three largest US-focused REITs averaged a distribution per unit (DPU) of 3.22 US cents, up an average 2.9% YoY, and a net property income of US$50.5 million, up 14% YoY. Prime US REIT, which made its trading debut in July 2019, reported the highest DPU of 3.52 US cents, up 5.1% from its IPO forecast.




			Name
			
			
			DPU (US cts)
			
			
			YoY Chg (%)
			
			
			Net Property Income (US$M)
			
			
			YoY Chg (%)
			
			
			Gross Revenue (US$M)
			
			
			YoY Chg (%)
			
		


			MANULIFE US REIT
			
			
			3.05
			
			
			0.3
			
			
			62.2
			
			
			18.8
			
			
			98.6
			
			
			18.3
			
		


			PRIME US REIT
			
			
			3.52
			
			
			5.1^
			
			
			47.5
			
			
			7.6^
			
			
			NA
			
			
			NA
			
		


			KEPPEL PACIFIC OAK US REIT
			
			
			3.10
			
			
			3.3
			
			
			41.9
			
			
			15.7
			
			
			70.5
			
			
			20.1
			
		


			Average
			
			
			3.22
			
			
			2.9
			
			
			50.5
			
			
			14.0
			
			
			 
			
			
			 
			
		

 Source: Company data

^% change computed against IPO Forecast, as trading debut was 19 July 2019

 

Debt Profiles

 
As of 30 June 2020, the trio averaged an aggregate leverage ratio of 36.5%, versus 36.1% as at 31 December 2019. Manulife US REIT had the highest aggregate leverage ratio of 39.1%, while Prime US REIT had the lowest gearing of 33.0%. Interest cover for the trio averaged 4.5 times in the June quarter, versus 4.7 times in the December quarter. Prime US REIT had the highest interest coverage ratio of 5.4 times, followed by Keppel Pacific Oak US REIT at 4.4 times.




			Name
			
			
			Aggregate Leverage Ratio (%) as at 30 June 2020
			
			
			Aggregate Leverage Ratio (%) as at 31 Dec 2019
			
			
			Interest Coverage Ratio (x) as at 30 June 2020
			
			
			Interest Coverage Ratio (x) as at 31 Dec 2019
			
		


			MANULIFE US REIT
			
			
			39.1
			
			
			37.7
			
			
			3.8
			
			
			3.8
			
		


			PRIME US REIT
			
			
			33.0
			
			
			33.7
			
			
			5.4
			
			
			5.1
			
		


			KEPPEL PACIFIC OAK US REIT
			
			
			37.4
			
			
			36.9
			
			
			4.4
			
			
			4.8
			
		


			Average
			
			
			36.5
			
			
			36.1
			
			
			4.5
			
			
			4.7
			
		

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

 Outlook  
Manulife US REIT


High 2H 2020 rental collections expected with majority top-quality tenants from finance, legal, tech, government and healthcare
	Adopting proactive leasing strategies:


Conduct virtual tours, target resilient tech and healthcare sectors
	Work to maximise tenants’ leasing plans e.g. accommodate social distancing


Seek yield accretive acquisitions in cities with strong demographic, high-growth sectors while maintaining diversification
	Mitigated near-term interest rate risk with 92.7% of outstanding loans on a fixed rate basis, resulting in a weighted average interest rate of 3.26% and weighted average debt maturity of 2.3 years


On 9 July 2020, US$95.1 million of loans due 2020 were refinanced, including Peachtree’s US$73.1 million loan, via a Trust-level green loan of US$100.0 million due in 2025
	Following expiry of a US$10.0 million committed revolving credit facility on 14 July 2020, the REIT has obtained a US$50.0 million committed revolving credit facility on 23 July 2020 for general corporate and working capital purposes


Despite employers adopting WFH practices globally to combat the pandemic, the Manager expects minimal impact on its portfolio for the following reasons:
	
Urban suburban likely to outperform gateway CBD in near-term
		Limited supply in foreseeable future
		WFH established in US for decades
		De-densification creates additional space
	

	Potential faster US recovery from COVID-19 vs Global Financial Crisis
	
Economic disruption mitigated due to massive fiscal and monetary stimulus
		Bigger COVID-19 relief package of ~US$3.5 trillion vs US$0.7 trillion GFC package
		Compared to GFC:
		
Banks better equipped to maintain market liquidity due to stress testing requirements
			Commercial real estate less levered
			Less over-supply of inventory
			About 90% of US office leases longer than two years to weather short-term impact
			Rents and occupancy expected to rebound post COVID-19 with positive net absorption and net deliveries
		

	


 Click here for the full results release

 

Prime US REIT


Continues to retain a well-staggered debt maturity profile and a conservative gearing ratio of 33.0% as at 30 June 2020, providing ample debt headroom and liquidity
	
Has fixed interest rates on 90% of its total borrowings of US$478.8 million and fully extended debt maturity of 5.1 years, mitigating against near-term interest rate and refinancing risks
		Following the restructuring of interest rate swaps in April 2020, effective interest rate as at 30 June 2020 decreased to 2.6%
	

	The US office market has remained relatively resilient in 1H 2020 with only 4 million office-using jobs lost according to Oxford Economics, compared to the more than 40 million jobless claims filed since mid-March
	
According to Green Street Advisors, June marked the largest single-month payroll gain in US history with the addition of 4.8 million new jobs, and was the second month in a row that far exceeded expectations
	



Established professional and financial services sectors have continued to provide a stable demand base; growing technological sectors are expected to drive demand for office space to create shared spaces for employees to foster a culture of collaboration and innovation
	Notable companies such as Microsoft are expanding in higher profile submarkets such as Midtown Atlanta and Reston Virginia (Washington D.C.), two markets where the REIT has assets
	According to a CBRE Global Occupier Sentiment Survey, while a more flexible work environment is important, the physical office remains an important function, with 60% of participants pursuing renewals and optimising their portfolios, and 70% confident in setting long-term real estate strategies
	There is also growing interest in de-densification over the short term, which sees firms spreading out employees to create less dense environments
	Over the long term, current footprint sizes are likely to remain steady, balancing the relaxation of space density with potentially less office-based headcount
	The REIT’s well-diversified portfolio is exposed to strategic markets that continue to attract large corporations but have little to no new office supply

 Click here for the full results release.

 

Keppel Pacific Oak US REIT


In July 2020, the Manager obtained a loan facility for the early refinancing of the REIT’s borrowings that were due in November 2021 – these were loans obtained during its IPO in November 2017
	
Interest rate swaps related to these borrowings were also restructured; with this, the REIT will have no long-term debt refinancing requirements until November 2022
		All borrowings are USD-denominated and 100% unsecured, providing the REIT funding flexibility as it continues to pursue long-term growth
		The Manager continues to limit interest rate exposure with floating-to-fixed interest rate swaps; as at 30 June 2020, 84.3% of the REIT’s non-current loans have been hedged
	

	The Manager remains cautiously optimistic of leasing performance in its key growth markets and is focused on its long-term goal of delivering stable distributions and strong total returns for unit holders
	The Manager’s continued prudent approach towards capital management and its proactive leasing efforts will also see the REIT capture rental escalations and positive rental reversions as leases expire
	As businesses re-evaluate their space needs and some move toward decentralising their workforce, its suburban office buildings and business campuses are well-positioned to benefit from this potential shift away from downtown, CBD locations
	Its distinct portfolio of office towers and business campuses also lends itself well to the additional space requirements as businesses de-densify
	The REIT’s strategic exposure to the historically fast-expanding tech hubs provides further income resilience as businesses accelerate their digital transformation strategies driven by COVID-19

Click here for the full results release



1H2020 Earnings of SGX’s Three Largest US-Focused REITs