STI Reserve List S-Reits active with M&A deals

THE Straits Times Index (STI) generated 1.7 per cent total return in February 2021, bringing its total return for the first two months of 2021 to 3.9 per cent. Based on data from FTSE Russell as at Dec 31, 2020, there are six S-Reits in the STI with combined indicative weight of close to 14 per cent.

Following the March 2021 quarterly review, FTSE Russell announced that there will be no changes to the constituents of the STI.

The STI Reserve List, comprising four Reits and one business trust, will be (in order of size) Frasers Logistics & Commercial Trust, Frasers Centrepoint Trust, Suntec Reit, Keppel Reit and NetLink NBN Trust.

The STI Reserve List is used in the event that one or more of the STI constituents are deleted in between quarterly reviews.

It was last activated in October 2020 when CapitaLand Commercial Trust, post-merger with CapitaLand Mall Trust, was deleted from the index and replaced by Keppel DC Reit.

The four S-Reits on the STI Reserve List, with average total returns of 0.9 per cent, have outperformed the six S-Reits in the STI, which saw an average decline of 4.5 per cent in total returns, in the 2021 year-to-date till March 4.

Keppel Reit, the best performing stock among the four S-Reits on the STI Reserve List, generated total return of 6.1 per cent, followed by Suntec Reit which gained 1.5 per cent.

Keppel Reit, in December 2020, completed the acquisition of Pinnacle Office Park, a freehold Grade A commercial property comprising three office buildings located within Macquarie Park in Sydney.

The property is valued at A$306.1 million (or S$302.1 million) and has an initial net property income yield of 5.25 per cent.

Keppel's portfolio now consists of 10 premium office assets strategically located in the prime business districts of Singapore, Sydney, Melbourne, Brisbane, Perth, and Seoul.

Based on the Reit's FY2020 portfolio update, it has a portfolio committed occupancy of 97.9 per cent while its overall portfolio weighted average lease expiry stands at 6.7 years.

The Reit also reported a distribution per unit of 5.73 Singapore cents, representing a 2.7 per cent increase year on year.

In February 2021, Keppel Reit completed a private placement of 238.9 million new units, raising aggregate gross proceeds of approximately S$270.0 million. The private placement was approximately 4.6 times covered and saw strong participation from new and existing institutional, accredited and other investors.

The bulk of the funds raised will be used to fund the proposed acquisition of Keppel Bay Tower, which has a strong and diverse tenant base of multinational corporations and anchored by the Keppel Group.

Keppel Reit noted that the fund raising and acquisition will increase its market capitalisation, improve trading liquidity, enhance the Reit's weightage in indices and is also a step towards further index inclusions.

Aside from Keppel Reit, Frasers Logistics & Commercial Trust, Frasers Centrepoint Trust and Suntec Reit saw active merger and acquisition activities in 2020 as well.

Frasers Logistics & Commercial Trust, which was the result of a merger between Frasers Logistics & Industrial Trust and Frasers Commercial Trust in May 2020, joined the STI Reserve List in June 2020.

Frasers Centrepoint Trust bought the remaining 63.1 per cent of AsiaRetail Fund it does not own for S$1.06 billion in October 2020, making it one of Singapore's largest suburban mall owners with 11 malls and 2.3 million square feet of retail net lettable area.

Suntec Reit successfully expanded into the United Kingdom in December 2020 with the acquisition of 50.0 per cent interest in two Grade A office buildings with ancillary retail in the heart of Victoria, West End, London for £436.0 million (or S$786.4 million). SGX RESEARCH

• For more research and information on Singapore's Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.
• Source: SGX Research S-Reits & Property Trusts Chartbook.