PRIME US REIT (SGX:OXMU)
MANULIFE US REIT (SGX:BTOU)
KEPPEL PACIFIC OAK US REIT (SGX:CMOU)
US Office S-REITs - Your American Heroes
- US Office REITs with a yield spread of 6%, almost double SREITs, is an attractive alternative to SREITs.
- Long WALE of c.5 years signals strong income visibility; expiring leases at 5-10% discount to market rates.
- Acquisitions to drive upside to our estimates.
- Manulife US REIT is the leader of the pack, Prime US REIT and Keppel Pacific Oak US REIT offer better value.
Singapore-listed US focused Office REITs offer attractive yield spread of 6.1% vs SREITs’ 3.4%.
- Given the run up of SREITs in the past 2 years, US Office REITs are an attractive alternative with a yield spread of c.6% to 10-year US yields, which is almost double that of SREITs.
- Supported by strong sponsors and visible growth engines, we project US Office REITS to deliver an average DPU growth rate of c.5.4% in FY20-21, with upside from acquisitions.
- With tailwinds from the strengthening USD-SG exchange rates, we believe US Office REITs offer attractive total returns.
Manulife US REIT is the leader of the pack; Prime US REIT and Keppel Pacific Oak US REIT offer better value.
- With an established track record and recent inclusion into the EPRA NAREIT Global Developed Index, Manulife US REIT (SGX:BTOU) is seeing increased liquidity and visibility among investors and trades at a premium (6.6% yield) to the other two younger REITs. We expect Manulife US REIT to lead its peers in terms of valuations.
- With ambitions to deliver accretive acquisitions, we see longer runways for both Prime US REIT (SGX:OXMU) and Keppel Pacific Oak US REIT (SGX:CMOU) which offer better value at yields of c.7.2% and c.8.7% respectively.
Solid yields, backed by long WALEs and improving metrics.
- US Office REITs typically have long WALEs ranging 4- 6 years unlike its Singapore focused peers. We note that only 5-7% of leases are expiring in FY2020 and 7-14% in FY2021. The US Office REITs thus display steady organic growth trends underpinned by positive leasing spreads for roll-over leases in the coming 2 years.
- With acquisitions on the horizon, we anticipate upside to our estimates.
Downside risks from lower GDP growth with prolonged COVID-19; lower dividend payout ratio.
- Downside risks are its leverage on GDP growth and market may not have priced in lower dividend payout ratios to fund tenant incentives / refurbishments.
- Based on a 95% payout, the yields are attractive at 6.2% to 8.2%. See Prime US REIT Dividend History; Keppel Pacific Oak US REIT Dividend History; Manulife US REIT Dividend History.
Comparison of US Office S-REITs
- See attached PDF report for comparison of Manulife US REIT (SGX:BTOU) vs Prime US REIT (SGX:OXMU) vs Keppel Pacific Oak US REIT (SGX:CMOU).
- Recent company reports by DBS Research:
- See also recent SGX Market Update: SGX’s US-Focused Office REITs December Quarter Earnings.
Rachel TAN
DBS Group Research
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Derek TAN
DBS Research
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https://www.dbsvickers.com/
2020-03-06
SGX Stock
Analyst Report
1.050
SAME
1.050
1.150
SAME
1.150
0.900
SAME
0.900
