Hot stocks: US office S-Reits on Fed rate-cut expectations, MAS proposal to relax leverage limit

PURE-PLAY US office real estate investment trusts (Reits) gained some ground on Tuesday (Aug 6) morning, following rising expectations that the US Federal Reserve would cut interest rates.

The gains also came after the Monetary Authority of Singapore (MAS) proposed in July to simplify requirements for all Reits.

The trio of US office Reits listed in Singapore – Manulife US Reit (MUST), Prime US Reit, and Keppel Pacific Oak US Reit (Kore) – were trading in the positive territory at the market open.

Manulife US Reit hit a high of US$0.075 as at 10.17 am, gaining 7.1 per cent or US$0.005. Prime US Reit also reached a high of US$0.157 when the market opened, up 8.3 per cent or US$0.012.

Meanwhile, Keppel Pacific Oak US Reit (Kore) rose as much as 7.5 per cent or US$0.013 to S$0.186 as at 10.07 am.

By 11.37 am, units of MUST were trading up 4.3 per cent or US$0.003 at S$0.073, with 6.7 million shares having changed hands.

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Prime US Reit units were up 5.5 per cent or US$0.008 at US$0.153, with 7.2 million shares having changed hands. Similarly, units of Kore were trading 7 per cent or US$0.012 higher at US$0.185, with 2.5 million shares having changed hands.

The MAS on Jul 24 published a consultation paper proposing to simplify leverage requirements for all Reits.

Under the set of proposals, all Singapore Reits, or S-Reits, will be subject to a minimum interest coverage ratio (ICR) threshold of 1.5 times, and an aggregate leverage limit of 50 per cent.

Currently, Reits that intend to increase their aggregate leverage from 45 per cent to 50 per cent must meet a minimum ICR requirement of 2.5 times. In the proposals, this requirement will be removed.

Over in the US, Fed Chair Jerome Powell signalled last week that the first-rate cut could come “as soon as” September, following a decline in its annual headline inflation.

The US central bank has held its benchmark lending rate at a two-decade high for the past year as it battles to return inflation to its long-term target of two per cent.