04 May 2018
March Quarter Earnings of SGX’s Largest Office REITs
  • SGX’s four largest Office REITs with assets in Singapore – CapitaLand Commercial Trust, Suntec REIT, Keppel REIT and Frasers Commercial Trust – averaged a DPU of 2.09 cents for the March quarter. The fifth trust – OUE Commercial REIT – will release its 1QFY18 results next Thursday.
  • Singapore’s office market is recovering, CBRE data showed. 1Q 2018 office occupancy levels in the core CBD have improved QoQ, while average Grade A rents have continued their upward trend, supported by strong demand from the insurance as well as TMT sectors, CBRE noted.
  • The five largest Office REITs on SGX have a combined market cap of S$18 billion. In the 2018 YTD, they have averaged a total return of -3.2%, bringing their one-year and three-year total returns to 14.3% and 21.8% respectively. The five trusts maintain an average 5.6% distribution yield.

SGX lists 34 Real Estate Investment Trusts (REITs), three property trusts and six stapled trusts. The Global Industry Classification Standards (GICS®) classifies seven of these as Office REITs, including two pure-play US REITs and one European REIT. Office REITs are companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of office properties.

 

The five largest Office REITs with assets in Singapore are: CapitaLand Commercial Trust (CCT), Suntec REIT, Keppel REIT, Frasers Commercial Trust and OUE Commercial REIT. Note that GICS® classifies Suntec REIT as a Diversified REIT due to retail assets in its portfolio.

 

The five largest Office REITs on SGX have a combined market capitalisation of about S$18 billion. In the 2018 year-to-date, they have averaged a total return of -3.2%, bringing their one-year and three-year total returns to 14.3% and 21.8% respectively. The five trusts also maintain an average distribution yield of 5.6%.

 

The table below details the five largest Office REITs with assets in Singapore, sorted by market capitalisation. Click on the stock name to view its profile in StockFacts.

 

Name

SGX Code

Market Cap S$M

3 May Closing Price

Total Return YTD %

12M Total Return %

3Y Total Return %

P/B (x)

Dvd Ind Yld %

GICS Sub Ind

CapitaLand Commercial Trust

C61U

6,501

1.800

-4.7

19.3

29.6

1.0

4.8

Office REITs

Suntec REIT

T82U

5,195

1.950

-7.0

16.9

30.7

0.9

5.1

Diversified REITs

Keppel REIT

K71U

4,078

1.200

-2.6

18.0

15.9

0.8

4.7

Office REITs

Frasers Commercial Trust

ND8U

1,226

1.390

-3.6

11.3

14.1

0.9

6.9

Office REITs

OUE Commercial REIT

TS0U

1,096

0.710

1.8

5.9

18.7

0.8

6.6

Office REITs

Average

     

-3.2

14.3

21.8

0.9

5.6

 

Source: Bloomberg & SGX StockFacts (Data as of 3 May 2018)

 

Geographical Spread

 

Note that the commercial assets owned by the five largest Office REITs are located both domestically and overseas – in Malaysia, Australia and the UK.

 

Apart from 10 office assets in Singapore, CCT owns a 17.7% stake in MRCB-Quill REIT, whose portfolio comprises 11 commercial properties across Malaysia. Suntec REIT’s Singapore portfolio comprises interests in seven commercial properties spanning the Central Business District (CBD), while in Australia, it has a wholly owned property in Sydney, and stakes in two commercial assets in Melbourne.

 

OUE Commercial REIT’s portfolio comprises three commercial properties in Singapore and Shanghai, while Frasers Commercial Trust’s (FCT) portfolio consists of seven office buildings and business park/space buildings in Singapore, Australia and the UK. Approximately 87% of Keppel REIT's office assets are in Singapore, with the remaining 13% located in Australia.

 

Last month, the four largest Office REITs – CCT, Suntec REIT, Keppel REIT, and FCT – reported earnings for the three months ended 31 March 2018. OUE Commercial REIT is scheduled to release its March quarter results next week, on 10 May 2018.

 

1Q Earnings Highlights 

 

For the first three months of 2018, the four trusts averaged a distribution per unit (DPU) of 2.09 Singapore cents, down an average 4.5% from the year-ago period. Suntec REIT reported the highest DPU of 2.43 Singapore cents among the four trusts, up 0.3% YoY, followed by FCT with a DPU of 2.40 Singapore cents, down 4.4% YoY. Suntec REIT was the only trust that posted a YoY percentage growth in DPU.

 

These trusts averaged a 3.4% YoY decline in net property income to S$48.5 million, while gross revenue fell an average 2.0% YoY to S$65.0 million.

 

On average, the four REITs had an aggregate leverage ratio of 37.1% as of the quarter ended 31 March 2018. This compares with an average of 36.8% in the three months ended 31 December 2017.

 

Keppel REIT and CCT had the highest aggregate leverage ratios of 38.6% and 37.9% respectively, while FCT had the lowest gearing of 35.3%. Interest cover for the four trusts averaged 4.3 times in the March quarter, versus 4.4 times in the December quarter.

 

March Quarter Financial Results 

 

Name

Distribution per unit (Singapore cents)

YoY % change

Net Property Income (SS$ mln)

YoY % change

Gross Revenue (S$ mln)

YoY % change

CapitaLand Commercial Trust

2.12

-11.7

77.2

10.5

96.4

7.7

Suntec REIT

2.43

0.3

63.0

1.9

90.7

2.6

Keppel REIT

1.42

-2.1

31.2

-0.6

39.7~

-0.3

Frasers Commercial Trust

2.40^

-4.4

22.4

-25.3

33.0

-18.0

Average

2.09

-4.5

48.5

-3.4

65.0

-2.0

~Property Income

 

^DPU comprises (1) advanced distribution of 0.80 cents for 1 Jan 2018 to 31 Jan 2018, which was paid out in cash on 12 Mar 2018, and (2) distribution of 1.60 cents for 1 Feb 2018 to 31 Mar 2018

 
               

 

Name

Aggregate Leverage Ratio (%) as at 31 Mar 2018

Aggregate Leverage Ratio (%) as at 31 Dec 2017

Interest Coverage Ratio (x) as at 31 Mar 2018

Interest Coverage Ratio (x) as at 31 Dec 2017

CapitaLand Commercial Trust

37.9

37.3

5.1

4.9

Suntec REIT

36.6

36.4

3.8

3.9

Keppel REIT

38.6

38.7

4.1

4.3

Frasers Commercial Trust

35.3

34.8

4.1

4.3

Average

37.1

36.8

4.3

4.4

Source: Company data

 

1Q 2018 Singapore Office Space 

 

On 27 April 2018, the Urban Redevelopment Authority (URA) released the real estate statistics for the first quarter of 2018. According to the report, prices of office space increased by 1.3% in the March quarter, compared with a 2.7% increase in the December quarter, while rentals of office space rose at the same pace as the previous quarter, by 2.6%.

 

As at the end of the first quarter, there was a total supply of about 791,000 sq m GFA of office space in the pipeline, compared with 597,000 sq m GFA in the pipeline in the previous quarter. The island-wide vacancy rate of office space declined to 12.5% at the end of the March quarter, from 12.6% at the end of the December quarter. Click here for the full release.

 

Improving Outlook

 

Office occupancy levels in Singapore’s core CBD improved to 94.1% in 1Q 2018 from 93.8% in 4Q 2017, with demand from the insurance and technology, media and telecom (TMT) sectors remaining strong during the quarter, Keppel REIT said in its 18 April results release, citing CBRE data. Average Grade A rents also continued their upward trend, increasing from $9.40 psf pm in 4Q 2017 to $9.70 psf pm in 1Q 2018, the data showed.

 

CBRE remains upbeat on the Singapore office market and has observed improving confidence among the traditional finance, energy and professional services sectors, which will lend support to a recovering office market, Keppel REIT noted.

 

Looking ahead, as challenges remain amidst a volatile macro environment, Keppel REIT’s Manager will continue to drive a stable portfolio performance through ongoing proactive tenant and lease management, so as to deliver sustainable distributable income to unitholders, it said. It will also maintain a prudent capital management strategy to optimise the REIT’s performance in a rising interest rate environment.

 

CCT also highlighted the steady uptrend in market rents in its 24 April 2018 results release, citing CBRE data. It noted that market rents are expected to grow steadily over the next few years, given higher committed occupancies in the newly completed office buildings and limited new supply in the CBD between 2018 and 2020.

 

“In relation to CCT, the potential rise in market rents will narrow the gap between committed and expiring rents for its leases due for renewal in 2018,” it added in the statement.

 

Did You Know?

 

Real Estate Investment Trusts (REITs) raise capital to purchase primarily real estate assets, usually established with a view to generating income for unit holders of the fund. This allows individual investors to access real property assets, and share the benefits and risks of owning a portfolio of properties, which typically distribute income at regular intervals through dividends.

 

The risks associated with a REIT investment vary, and include factors such as gearing ratios, refinancing costs, alignment of management fees, as well as geographical location and quality of the underlying assets in their portfolios. Other risks associated with stock investing (e.g. price risk, volatility and liquidity risks) also apply.


My Gateway & SGX StockFacts

cid:image007.png@01D2BDD0.57B4CE40

 

My Gateway

 

SGX’s investor education portal with market, product and investment information and events. Sign up now at sgx.com/mygateway to receive our investment updates and economic calendar.

 

 

cid:image007.png@01D2BDD0.57B4CE40

 

SGX StockFacts

 

Whether you are seeking new or established companies to invest in, SGX StockFacts can provide you with the information you need to identify and understand the stocks that best fit your investment strategy. Visit now at sgx.com/stockfacts.

www.sgx.com

This document is not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Singapore Exchange Limited (“SGX”) to any registration or licensing requirement. This document is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product. This document is for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Use of and/or reliance on this document is entirely at the reader’s own risk. Further information on this investment product may be obtained from www.sgx.com. Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is not indicative of their future performance. Examples provided are for illustrative purposes only. While each of SGX and its affiliates (collectively, the “SGX Group Companies”) have taken reasonable care to ensure the accuracy and completeness of the information provided, each of the SGX Group Companies disclaims any and all guarantees, representations and warranties, expressed or implied, in relation to this document and shall not be responsible or liable (whether under contract, tort (including negligence) or otherwise) for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind, including without limitation loss of profit, loss of reputation and loss of opportunity) suffered or incurred by any person due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information, or arising from and/or in connection with this document. The information in this document may have been obtained via third party sources and which have not been independently verified by any SGX Group Company. No SGX Group Company endorses or shall be liable for the content of information provided by third parties. The SGX Group Companies may deal in investment products in the usual course of their business, and may be on the opposite side of any trades. SGX is an exempt financial adviser under the Financial Advisers Act (Cap. 110) of Singapore.  The information in this document is subject to change without notice. This  document shall not be reproduced, republished, uploaded, linked, posted, transmitted, adapted, copied, translated, modified, edited or otherwise displayed or distributed in any manner without SGX’s prior written consent.

Nikkei owns the copyright and any other intellectual property rights in the Nikkei Stock Average itself, and the method for calculating the Nikkei Stock Average and the like. All ownership of trademarks and any other intellectual property rights with respect to marks representing "Nikkei Inc.," "Nikkei," and "Nikkei Stock Average" belongs to Nikkei. Nikkei is not obliged to continuously publish the Nikkei Stock Average, nor is it liable for any error or delay in, or discontinuation of the publication thereof. Nikkei owns the right to change the content of the Nikkei Stock Average, such as the calculation method thereof, and the right to suspend the publication thereof. Nikkei does not give any warranty, nor is it responsible for any and all financial instruments and the like, which are based on, or otherwise refer to, the Nikkei Stock Average.

All rights in the FTSE China A50 Index (the “Index”) vest in FTSE International Limited (“FTSE”). “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE under license.

The SGX FTSE China A50 Index Futures (the "Product") has been developed solely by Singapore Exchange Derivatives Trading Limited. The Index is calculated by FTSE or its agent. FTSE and its licensors are not connected to and do not sponsor, advise, recommend, endorse or promote the Product and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Product. FTSE makes no claim, prediction, warranty or representation either as to the results to be obtained from the Product or the suitability of the Index for the purpose to which it is being put by Singapore Exchange Derivatives Trading Limited.

Futures or options contract on any MSCI Index are not sponsored, guaranteed, endorsed, sold or promoted by MSCI, any affiliate of MSCI or any other party involved in, or related to, making or compiling any indexes (but expressly including the exchange) MSCI bears no liability of any kind with respect to such contracts