Yesterday, the co-creators of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), announced some changes to the index as part of its September quarterly review. The announcement also revealed the new STI reserve list. Companies on this list will replace any STI component that becomes ineligible due to corporate actions, before the next review. With that, let’s look at the five STI reserve list components in order of market capitalisation. Component #1: Suntec Real Estate Investment Trust (SGX: T82U) Suntec Real Estate Investment Trust is the first composite real estate investment trust (REIT) in Singapore, owning both retail and…
The announcement also revealed the new STI reserve list. Companies on this list will replace any STI component that becomes ineligible due to corporate actions, before the next review.
With that, let’s look at the five STI reserve list components in order of market capitalisation.
Component #1: Suntec Real Estate Investment Trust (SGX: T82U)
Suntec Real Estate Investment Trust is the first composite real estate investment trust (REIT) in Singapore, owning both retail and office properties. Its portfolio includes Suntec City, a one-third interest in One Raffles Quay, a commercial building in Australia’s Sydney, and a 50% stake in Southgate Complex in Melbourne, Australia.
As of 30 June 2018, the portfolio committed occupancy stood at 99%, with the office occupancy at 99% and the retail component at 98.2%. Suntec REIT’s gearing was 37.9%, and it had an interest coverage ratio of 3.6 times.
Since the start of the year, units in Suntec REIT had fallen some 13%. However, there are reasons to be bullish about the REIT. Based on the closing price of S$1.87 yesterday, the REIT had a price-to-book (PB) ratio of 0.89 and a distribution yield of 5.3%.
Component #2: Mapletree Commercial Trust (SGX: N2IU)
Mapletree Commercial Trust is the owner of the largest shopping centre in Singapore, VivoCity, among other properties. You can check out the link here for a full list of properties owned by the REIT.
At the end of June 2018, the portfolio committed occupancy was 99.2%, with the actual occupancy at 96.4%. Mapletree Commercial Trust had a gearing ratio of 34.7%, the lowest among the REITs featured in this article. Its interest coverage was 4.6 times. For a full update on the REIT’s latest first quarter earnings, you can head here.
Yesterday, the REIT closed at S$1.62 per unit, giving a PB ratio of 1.09 and a distribution yield of 5.6%.
Component #3: Keppel REIT (SGX: K71U)
Keppel REIT invests in commercial properties in both Singapore and Australia. In our city-state, it owns Ocean Financial Centre (99.9% interest); Bugis Junction Towers (full interest); and a one-third stake in One Raffles Quay, Marine Bay Link Mall, and Marina Bay Financial Centre Towers 1, 2 and 3. In Australia, it has assets in Sydney, Melbourne, Brisbane and Perth.
As of end-June 2018, the REIT’s committed occupancy was 99.3%. The gearing ratio stood at 38.6% while the interest coverage ratio came in at 4.3 times.
In July and August this year, the REIT started buying back its units from the open market. In July, the REIT’s manager repurchased 3.5 million units of the REIT for a total amount of S$4.1 million. Last month, it bought back 1.8 million units for a total outlay of S$2.1 million.
The buybacks could be a signal to the market that the REIT’s units are undervalued. At a closing price of S$1.18 yesterday, Keppel REIT sported a PB ratio of 0.81 and a distribution yield of 4.8%.
Component #4: Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust (MLT) is the first Asia-focused logistics REIT to be listed in Singapore. The portfolio contains 134 properties, comprising assets in Singapore, Hong Kong, Japan, Australia, South Korea, China Malaysia and Vietnam.
MLT’s portfolio occupancy rate was 95.7%, as of 30 June 2018. As for its gearing, it came in at 36.4% with the interest cover ratio at 5.2 times.
Looking ahead, the REIT mentioned in its first quarter earnings update:
“While the global economy continues on a steady expansionary path, downside risks have increased as the escalating trade tensions between major economies and rising interest rates may undermine global growth.
In the markets where MLT operates, demand for prime logistics space has remained stable, underpinned by domestic consumption and the growth of e-commerce.”
Yesterday, the REIT closed at S$1.26 per unit, giving a PB ratio of 1 and a distribution yield of 6.1%.
Component #5: Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust owns 86 industrial properties in Singapore and 14 data centres in the United States (40% interest through its joint venture with Mapletree Investments Pte Ltd). Mapletree Investments is also the sponsor of Mapletree Commercial Trust, Mapletree Logistics Trust and Mapletree Industrial Trust.
As of 30 June 2018, Mapletree Industrial Trust had an overall portfolio occupancy of 88.3%. It has the highest interest cover among the REITs mentioned in this article at 6.9 times. Gearing ratio stood at 35%, the second lowest among the five REITs.
As for the outlook in the data centre space, the REIT had this to say during its latest earnings update:
“Several key drivers such as the movement to cloud and outsourcing as well as the need for data to be stored close to its end users and for geographical diversity are expected to contribute to the growing demand in the United States for leased data centre space.
Between 2017 and 2022F, the demand for leased data centre space (by net utilised square feet) in the United States is expected to grow at a compound annual growth rate (“CAGR”) of 8.7%, faster than the CAGR of 6.8% for the supply of leased data centre space (by net operational square feet).”
Based on the closing price of S$2.01 yesterday, the REIT had a PB ratio of 1.36 and a distribution yield of 5.9%.
The Foolish takeaway
As you can see, all the five STI reserve list components happen to be REITs. The nuances of investing in REITs can be slightly different from that of investing in companies. To understand more about REITs and how to invest in them, do check out our complete guide here.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of Mapletree Commercial Trust and Mapletree Industrial Trust. Motley Fool Singapore contributor Sudhan P doesn’t own units in any REITs mentioned.