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US Office Sector Focused S-REITs – A Peer Comparison

by: Tam Ging Wien


All examples and stocks quoted here in this article and on the ProButterfly.com and REITScreener.com site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial adviser.


There are 3 listed S-REITs which have a focus on the US office sector, namely (in order of market cap):

  1. Manulife US REIT (BTOU.SI)
  2. Prime US REIT (OXMU.SI)
  3. Keppel Pacific Oak REIT (CMOU.SI)

All have released their FY2020 full year results as of time of writing and we thought it would be good to put the figures of all these REITs side-by-side for a comparison to see how each one has faired over the course of the COVID-19 pandemic throughout 2020.

First Up, Compiling the Figures

We spent time to compile the figures for all 3 REITs both from their official sources and also with the help of REITScreener.com. We have classified these metrices in terms of the Portfolio, Growth, Valuation and Debt statistics. We have laid out all the figures in table below.


Source: Manulife US REIT, Prime US REIT, Keppel Pacific Oak REIT, ProButterfly Research, REITScreener Research

Observations and Findings

After we have gotten all the figures into a comparison table, now we are ready to make any observations, comparisons and try to establish the reasons for what we observe.

1. All Three S-REITs Showed Strong Rental Collection

All 3 US Office S-REITs have a Q4-2020 rental collections of 97% and above which indicates that majority of their tenants are not as severely impacted by the COVID-19 pandemic to a point where they are not able to service their rentals obligations. All three S-REITs have rental collections above the average rental collections based on NAREIT’s September 2020 US rental collections survey which indicated that the rent collections are approximately 96.4%.

This is likely due to the class of multinationals and grade A tenants which are predominant in their assets.

2. All Three S-REITs Show Healthy Occupancy Rates with Manulife US REIT Being the Highest

Manulife US REIT’s occupancy rate for the close of FY2020 stood at a healthy 93.4% as compared to the average US Class A offices which average about a 84% occupancy rate according to JLL’s Q4-2020 US Office Outlook.

Its peers are not far behind with Prime US REIT’s occupancy rate at 92.4% while Keppel Pacific Oak REIT’s occupancy rate came in at 92.3%.

Manulife US REIT also is likely to have the most predictable performance going forward with the longest weighted average lease expiry (WALE) at 5.3 years and a built-in rental escalation of 2.0% on average. Prime US REIT’s and Keppel Pacific Oak REIT’s WALE stood at 4.4 years and 3.8 years, respectively.

3. Keppel Pacific Oak REIT Showed the Fasted Rental Reversions Among Its Peers

Keppel Pacific Oak REIT clocked a phenomenal double digit rental reversion of 10.2% in FY2020 and attributed this mainly to the strong rent growth in the Seattle – Bellevue/Redmond, Sacramento, and Austin markets. The assets that Keppel Pacific Oak REIT owns in these areas are The Westpark Portfolio, The Plaza Buildings and Bellevue Technology Center, Iron Point, Great Hills Plaza, and Westech 360.

In terms of growth in the value of the portfolio, the main drivers of the change in asset value are directly attributed to The Westpark Portfolio, The Plaza Buildings and Bellevue Technology Center.

Its clear that both asset value growth and rental growth in the attributed areas are predominantly due to the growth and expansion of big tech companies which drive up the leasing in terms of value and size. Keppel Pacific Oak REIT appears to have ridden on the backs of the biggest beneficiary of the 2020 COVID pandemic – the tech sector.


Source: Keppel Pacific Oak REIT

Prime US REIT also clock a healthy rental reversion at 7.2% and attributed over 60% of the renewed and expanded leases are by existing tenants and new tenants largely from established and technology sectors.

Manulife US REIT clocked a 0.1% rental reversion primarily due to a significant mark to market lease. The long-term lease had been enjoying rental escalations much faster than the growth in the markets and when finally came the time to renew, they had their lease re-baselining it to current rental conditions. If this one-off mark to market lease had not taken place, the rental reversion would have been 4.7%.

4. High Rental Growth Appears to be Correlated to Tech Sector Exposure in FY2020

Keppel Pacific Oak REIT has a 28.2% portfolio exposure by Net Leasable Area (NLA) exposed to the tech sector. As a comparison, Prime US REIT’s exposure to the Communications and Information sector is approximately 15.9% (by Cash Rental Income) while Manulife US REITs’s exposure to the Information sector stands a 7.1% (by Gross Rental Income).

Comparing this exposure figures to their respective FY2020 rental reversions of 10.2%, 7.2% and 4.7% (excluding one-off mark-to-market lease), it apepars that the rental reversions seem to have some correlation with tech sector exposure.

Readers should note that all 3 S-REITs did not provide a consistent way to measure the exposure as the way they classified the tech sector tenants as well as exposure measurements utilises a different metric.

5. Keppel Pacific Oak REIT Clocked the Highest Growth in Gross Rentals and NPI

Keppel Pacific Oak REIT, Prime US REIT and Manulife US REIT clocked a 13.6%, 11.2% and 9.3% growth in rental revenue respectively and a 11.0%, 7.7% and 4.6% growth in Net Property Income (NPI).

Keppel Pacific Oak REIT attributed their growth in gross revenue and NPI to the acquisition of One Twenty Five in Dallas, Texas back in Nov-2019, as well as built-in rental escalations and positive rental reversion across the portfolio.

Prime US REIT attributed their growth in gross revenue and NPI to the acquisition of Park Tower in Sacramento, California. The acquisition completed in Feb-2020.

Similarly, Manulife US REIT attributed their growth in gross revenue and NPI to the acquisition of Centerpointe and Capitol which occurred in 2019. Centrepointe is located in Fairfax County, Virginia while Capitol is located in Sacramento, California.

6. Growth in Revenue and NPI Did Not Translated to Growth in DPU for Manulife US REIT

Both Keppel Pacific Oak REIT and Prime US REIT has shown a growth in revenue and NPI, and that translated into increased DPUs from FY2019 to FY2020.

Manulife US REIT however did not follow this expected trend and attributed the decline in DPU due to lower property income and provision for expected credit losses after factoring in the enlarged unit base from equity fund raising in 2H 2019.

Another reason that Manulife US REIT further shared in its briefing is lower car park income that it received. The management shared that 7 out of 9 of the portfolio assets earn income from car parks which benefits from surrounding entertainment and sporting venues. Naturally due to the COVID-19 pandemic, these events and entertainment where cancelled and/or postponed leading to a loss of car park income in FY2020. Furthermore, there was a higher vacancy in the Michelson and Peachtree building leading to lower property income.

In addition to the lower property income, Manulife US REIT out of prudence further budgeted for expected credit losses on their receivables from a retail tenant and other F&B tenants.

The management has clarified that the retail tenant has already in Feb-2021 agreed to settle all their arrears in full and those that portion of the credit losses will not be realised. They furthermore have guided that as more and more sectors of the US economy will be reopening as well as preference for people to drive rather than take public transport will likely lead to a recovery of the car park income in FY2021.

7. Prime US REIT has the Most Conservative Debt Financing


Source: Manulife US REITPrime US REITKeppel Pacific Oak REITProButterfly ResearchREITScreener Research

Based on the debt metrices, we found that Prime US REIT has the most conservative debt financing among its peers. It has the lowest gearing, lowest average interest cost, highest interest coverage ratio and longest weighted average debt maturity.

Manulife US REIT has specifically indicated that it is expected to refinance another US$233.8mil in year 2021 at a lower interest cost which is expected to lower the overall average interest cost to below 3.0% by year end.

All three S-REITs also have a fixed the interest rate of over 80% of their debts.

A cursory check has verified that none of the 3 US Office S-REITs had use any forms of hybrid securities such as perpetual securities of perpetual convertible securities.

8. Prime US REIT has the Largest Debt Headroom

We tabulated the Total Assets and Total Debts of all three peers and estimated that the debt headroom will be for each based on a gearing limit of 45%. We intentionally picked 45% because it gives a 5% buffer before reaching the regulatory gearing limited of S-REITs which are capped at 50%. While its possible for REITs to push their gearing above 45%, most REIT managers would rather leave that 5% buffer for financial prudence.

Based on the absolute debt headroom, we found that Prime US REIT has the largest at about US$302mil. Given that their 12 properties are valued at US$1,405.5mil, on average each asset is worth US$117mil, their debt headroom would allow approximately 3 more acquisitions of similar sizes without utilising any equity fund raising.

Similarly, Keppel Pacific Oak REIT has debt headroom of estimated at US$199mil while Manulife US REIT’s debt headroom is estimated to be US$151mil.

Looking at the valuation metrices that have compiled, Prime US REIT appears to be best positioned for accretive acquisitions. That’s not to say that Keppel Pacific Oak REIT or Manulife US REIT are not able to make accretive acquisitions, but it their marginally depressed share prices are just not in their favour.

Concluding Remarks

FY2020 has been a roller-coaster with the stock market initially taking a huge plunge in the first quarter and after that rapidly rising in a V-shaped recovery from Q2-2020 to the end of the year. Tech was one of the main sectors that rallied throughout FY2020 and had outperformed the rest of the market due to the increasing reliance on technology during the pandemic. While traditional sectors languished, the tech sector flourished with accelerated adoption of ecommerce, corporate digitalisation push, work-from-home amongst other reasons.

The rapid expansion of the tech sector appears to have also boosted real estate leases and values in cities with a burgeoning tech industry. These appear to have benefited REITs with assets exposed to these cities or sectors. Among the 3 local S-REITs that we looked at, Keppel Pacific Oak REIT appears to have been one of the beneficiaries with its larger exposure to the tech sector compared to its peers.

What would FY2021 bring? Will the tech sector continue to power Keppel Pacific Oak REIT forward? Or will a broad-based recovery help lift Manulife US REIT with improvements to its car park revenue and absences of its credit losses provision? With a much larger debt headroom and lower cost of equity compared to its peers, could Prime US REIT leap forward with a sizable acquisition to boost its DPU?

As we put the COVID-19 pandemic behind us, one thing is for sure – there is much to look forward to in FY2021 and FY2022.

Positioning to Ride the Recovery

Opportunities and Risk Post-COVID-19 Pandemic in the S-REIT Sectors

The COVID-19 crisis has brought about an unprecedented economic shock to many sectors, and yet it has also generated opportunities in others.

The tech sector has been a major beneficiary and along with that, S-REITs exposed to the Data Centre sector such as Keppel DC REIT and Mapletree Industrial Trust gained phenomenally.

But are the investment opportunities in REITs now gone? Personally, we do not think so. There are still many REITs below their pre-COVID-19 levels poise to recover strongly in the coming quarters – and now it is the best time to prepare to capture the post-COVID recovery.

Join us as we discuss the opportunities and risk in the S-REIT space sector-by-sector as we try to uncover recovery opportunities for FY2021 and beyond. Real estate sectors that we will be covering include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.

Our speaker Tam Ging Wien will be sharing his knowledge and experience including:

  • Part 1: A Survey of the REITs Landscape Around The World
  • Part 2: Key Metrics in Identifying Strong REITs
  • Part 3: Real Estate Sector Review Amidst the COVID Crisis
  • Part 4: Screening for Opportunities
  • Part 5: Q&A

Some key highlights that will be covered includes:

  • Real estate sector-by-sector review on COVID-19 impact and recovery opportunities. Sectors covered include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.
  • Opinion on which sector will continue to stay resilient and which are poised to recover quickly post-pandemic
  • The right metric to use when screening for high quality REITs
  • Case studies of REITs which are considered high quality
  • Step-by-step demo of how to screen for high quality REITs on your own

During the sharing session, various Singapore-listed REIT examples will be used.

There will also be a Q&A so that members of the investing community may engage in open dialog and discussions in order to deepen their understanding of REITs. Do prepare your writing materials for note taking.

Please note that the duration of the on-site seminar is 7pm to 9:30pm Singapore Time (GMT +8).

The details of the event are as follows:

  • Seminar: Positioning To Ride The Recovery
  • Date: 10th March 2021 (Wed)
  • Time: 7:00pm to 9:30pm
  • Venue: RNN Conference Centre - Kyoto Training Room (Level 4), 137 Cecil Street, Cecil Building #04-01, Singapore 069537
  • Fees: S$10.00
  • Sign-up Link: http://reitessentials.eventbrite.com/

To learn more about REITs, we recommend the article: What are REITs?

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