If you look at U.S. office recovery, it’s much slower. Clearly, the market is concerned how “working from home” will change the way people view offices in the future. But I don’t care.
Why? Companies still need to have a physical space to manage their staff. There’s nothing like physical communication as opposed to online communication.
And what’s more important is investing in properties isn’t about spotting huge trends. It’s finding the right property that continue to attract high quality tenants in the right locations.
U.S. office Singapore REITs are now yielding at least 6% dividend yield.
Something worth looking at?
Let’s get right to it.
U.S. Office Singapore REITs #1: Prime US REIT
Prime US REIT (SGX:OXMU) is a major Singapore REIT with a US$1 billion market cap.
Its office properties are located across the U.S. Unlike offices in the CBD, these offices are deep within the suburban areas of the U.S.
All 11 properties produced an average occupancy rate of 91%. Their lowest occupancy rate came from a property that is 86% occupied.
Despite the relatively low occupancy rate, Prime US REIT still spots a 7.8% dividend yield.
But what I like about this REIT is its high quality tenants (including government agencies). These tenants are the blue-chips of their own niche.
Source: Company Presentation
As a result, this makes Prime US REIT a well-diversified Singapore REIT. This makes their overall rental income stable.
During their latest half yearly results, Prime US REIT produced S$72 million of revenues.
They also made S$35 million of net income, which are mostly distributed as dividends to unitholders. Last year, Prime US REIT paid 6.7 cents per unit during the pandemic. This year, they paid 6.8 cents per unit. That makes its current dividend yield at 7.8%.
When COVID forced Prime US REIT’s occupancy rate to fall from 96% to 91%, this Singapore REIT continued to collect steady rental income.
Here’s the other thing, Prime US REIT also have built in rental escalations. Every year, they can continue to adjust rent upwards to meet inflation expectations.
Since Prime US REIT just got listed on SGX, there’s no strong track record of distribution.
So far, they paid out what they have projected, which I think is reasonable. This was even during the pandemic.
What I don’t like about Prime US REIT is I’m not too familiar with these properties’ location. Hence, I’m trusting the REIT manager and sponsor to pick these properties.
Prime US REIT’s sponsor, KBS is a smallish property advisory. Not much info on them except they were formed in 1992 as an office specialist.
If you’re okay with a smaller property sponsor like KBS and comfortable with a new REIT on the block, this could be something worth looking at.
U.S. Office Singapore REITs #2: Manulife US REIT
Manulife US REIT (SGX:BTOU) was the first Singapore REIT to be listed with U.S. offices in 2016. Unlike Prime US REIT, Manulife US REIT’s latest financial results got hit badly by the pandemic.
In its latest half yearly results, Manulife US REIT’s gross revenues fell 7.9% to US$90 million. While income that’s available to distribute as dividends fell 10% to S$42 million.
This was because Manulife US REIT’s big three properties — Michelson, Centerpointe and Capitol went into some trouble. Their tenants pulled their leases during the pandemic. That forced Manulife US REIT’s occupancy rate to drop to 91%.
Source: Company Presentation
But what I like is about Manulife US REIT is its strong sponsor, Manulife Financial. This is one of the largest insurers with a strong real estate portfolio. Six of Manulife US REIT’s nine properties are bought over from Manulife Financial.
And based on that, I’m not surprised Manulife Financial would inject more properties to grow this Singapore REIT.
Of course, that does not exclude Manulife US REIT’s ability to buy properties from else where. In fact, three of their properties were sourced from third parties. This gives Manulife US REIT a lot of opportunities to source new properties.
Pandemic or not, I see greater growth potential for Manulife US REIT compared to Prime US REIT.
So far Manulife US REIT’s dividend pay out is quite lousy. This is despite the fact they have prime grade-A offices in their portfolio.
Since Manulife US REIT got listed in 2016, with a current 6.7% dividend yield. But over the years, this Singapore REIT’s dividend pay out tends to bounce up and down often:
2017: 6.8 cents per unit
2018: 5.1 cents per unit
2019: 7.6 cents per unit
2020: 4.5 cents per unit
2021: 5.3 cents per unit
Overall, what I like about this Singapore REIT is its strong sponsor and its ability to source new properties from elsewhere. But in the meantime, it does seem its dividend payout can be volatile.
U.S. Office Singapore REITs #3: Keppel Pacific Oak US REIT
Keppel Pacific Oak US REIT (SGX:CMOU) is a US$814 million U.S. office Singapore REIT. It was listed in 2017.
What’s different about Keppel Pacific Oak is its technology-focused tenants. These companies include domestic U.S. companies like Ball Aerospace, Lear, Oculus VR. These businesses sound unfamiliar to Singaporean investors, but they are some of the most established tech companies in the U.S. today.
Source: Company Presentation
What’s reassuring is none of the tenants make up more than 3% of Keppel Oak’s rental income. That means, if these tenants decide to pull out, or defaults, Keppel Pacific Oak can simply replace these tenants. Unitholders don’t have to worry too much their dividends get affected.
In its recent half-yearly results, Keppel Pacific Oak produced US$68 million in gross revenues, slightly lower than it was a year ago. But the interesting thing was, its distributable income grew 2.8% to US$29.9 million. Keppel Pacific Oak’s distributable per unit (DPU) remained stable at 3.16 cents per unit.
Since it got listed in Nov 2017, this Singapore REIT has has rewarded unitholders well:
2018: 6.22 cents per unit
2019: 6.01 cents per unit
2020: 6.23 cents per unit
For the first half of this year, Keppel Oak paid out 3.16 cents per unit, slightly higher than it was a year before.
Like Manulife US REIT, Keppel Pacific Oak has a strong sponsor, Keppel Corporation that works with KORE Pacific Advisors. That should keep the REIT’s engine growth steady.
What else you might want to know about U.S. Office Singapore REITs
What I find interesting about Singapore REITs that own U.S. offices is they aren’t subjected to U.S. corporate tax, dividend withholding tax and no Singapore corporate taxes.
As a dividend investor, you save up on a bunch of taxes.
But that’s not the only reason why Singapore REIT’s dividend yield is generally much higher than U.S. office REITs.
The other reason why is because investors who buys Singapore REITs don’t like to take on foreign currency risks. These U.S office Singapore REITs pay your dividends in USD.
That’s why, if you compare U.S. office REITs’ yield, many of them are yielding at close to 4%. And you are also subjected to a 30% withholding dividend tax for owning U.S stocks as a foreign investor. While our U.S. office Singapore REITs are trading at least 6%+ dividend yield. This compensates for the foreign currency risks.
Don’t forget, REITs pay out at least 90% of their rental income as dividends. There’s no way they can reinvest their earnings to grow their business. Usually REITs raise more equity and debt to grow their business. That’s why REITs generally don’t see an upward capital appreciation (other than rise in their property value). Think of it like a bond.
As a result, if USD drops against SGD, it’s a huge risk for dividend investors owning these REITs.
Sometimes investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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In case of estate tax rules , are these REITS subject to US law or Singapore law ?
These Singapore REITs are incorporated in Singapore, so subjected to local laws.