The Motley Fool

Better Buy: Manulife US REIT vs. Keppel-KBS US REIT

Manulife US Real Estate Investment Trust (SGX: BTOU) and Keppel-KBS US REIT (SGX: CMOU) are two US commercial REITs listed in Singapore. Here, let’s determine which of the two gives you more bang for your buck.

Background of the two US REITs

Manulife US REIT was listed on 20 May 2016 and currently has a portfolio of eight Class A office freehold properties located in California, Atlanta, New Jersey, and Washington D.C. As of 30 June 2019, the REIT’s portfolio was valued at US$1.9 billion.

On the other hand, Keppel-KBS US REIT went public on 9 Nov 2017. The REIT’s portfolio comprises of 13 freehold office buildings and business campuses in the US. Keppel-KBS US REIT’s portfolio was valued at US$1.1 billion, as of end-June 2019.

Gross revenue and net property income growth

Let’s start off by comparing the gross revenue and net property income (NPI) growth of Manulife US REIT and Keppel-KBS US REIT for the second quarter of 2019. The gross revenue shows the amount of rental income flowing into the REITs while the NPI shows the amount left over after deducting property expenses.

(Note: We are comparing the latest earnings of the REITs instead of looking at a longer-term trend as the REITs don’t have a long listed history.)

  Manulife US REIT Keppel-KBS US REIT
Gross revenue growth 33.2% 29.3%
Net property income growth 33.8% 30.4%

Source: REITs’ 2019 second-quarter earnings

Manulife US REIT managed to produce higher gross revenue and NPI growth in its 2019 second-quarter as compared to Keppel-KBS US REIT.

Winner: Manulife US REIT

DPU and NAV growth

The distribution per unit (DPU) reveals how much unitholders get from owning the REITs. Meanwhile, the net asset value (NAV) is the difference between a REIT’s assets and its liabilities.

The table below compares the DPU and NAV per unit growth of the two REITs for 2019 second-quarter versus that of 2018 second-quarter:

  Manulife US REIT Keppel-KBS US REIT
DPU growth 17.7% 0%
NAV growth -4.8% -11.2%

Source: REIT’s 2019 second-quarter earnings; author’s computation

Manulife US REIT has a much higher DPU growth than compared to its counterpart. Likewise, its NAV per unit growth, although negative, still easily outperformed Keppel-KBS US REIT’s.

Winner: Manulife US REIT

Portfolio strength

We will now explore the portfolio strength of the two REITs by comparing their occupancy rate and weighted average lease to expiry (WALE). The WALE shows the average number of years left before the leases of the REIT’s tenants expire.

  Manulife US REIT Keppel-KBS US REIT
Occupancy rate 97.2% 94%
WALE by net lettable area 6.2 years 3.9 years

Source: REIT’s 2019 second-quarter earnings (figures as of 30 June 2019)

From the looks of it, Manulife US REIT has a stronger portfolio with an occupancy rate of around 97% versus that of 94% for Keppel-KBS US REIT. Also, with Manulife US REIT’s much longer WALE, its rental income is less prone to disruption.

Winner: Manulife US REIT

Financial strength   

Here, we will compare the gearing ratio and interest cover of the two REITs, which reveal the strength of a REIT’s balance sheet. The gearing ratio shows how much leverage a REIT has taken on. Singapore REITs have a gearing limit of 45%, as required by the Monetary Authority of Singapore. As for the interest cover, it reveals how easily a REIT can pay interest expenses on its outstanding borrowings.

  Manulife US REIT Keppel-KBS US REIT
Gearing ratio 37.1% 37.7%
Interest cover 3.9x 4.6x

Source: REIT’s 2019 second-quarter earnings; author’s computation (figures as of 30 June 2019)

Manulife US REIT has a slightly lower gearing ratio than Keppel-KBS US REIT. However, its interest cover is not as high as its counterpart’s.

Winner: It’s a tie


As investors, we should focus on the value of the REITs and not on the daily changes in their unit prices. Let’s now compare the price-to-book (PB) ratio and distribution yield of the two REITs. The values below are as of the closing prices on 14 August 2019.

  Manulife US REIT Keppel-KBS US REIT
PB ratio 1.13 0.98
Distribution yield 6.8% 7.0%
Unit price US$0.89 US$0.775
Market capitalisation US$1,222.9 million US$634.6 million

Source: SGX Stock Screener; author’s computation

In terms of valuation, Keppel-KBS US REIT edges out its competition; its PB ratio is a tad lower and it also has a slightly higher distribution yield.

Winner: Keppel-KBS US REIT

The Foolish bottom line

Overall, Manulife US REIT is the winner as it triumphs over Keppel-KBS US REIT in terms of financial growth and portfolio strength. Manulife US REIT’s valuation doesn’t look that expensive either. Investors who are interested in Manulife US REIT could go one step further and compare the future growth drivers of the REIT before investing in it.

Want to keep reading on how to lock in those sweet REIT dividends? Our Complete Guide To Buying The Best Singapore REITs dives into what we think you need to know about finding the best REITs that regularly hand you a fat dividend cheque. Click here to download your FREE guide.

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 shares of Manulife US REIT. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.