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Keppel REIT’s Distribution Grows

Keppel REITKeppel REIT’s (SGX: K71U) third-quarter earnings showed a 6.8% year-on-year increase in net property income to S$34m. Distributable income grew 4.6% to S$54m, while distribution per unit (DPU) for the quarter inched up 0.5% to 1.97 Singapore cents.

The Real Estate Investment Trust specialises in premium commercial buildings and owns a portfolio of 10 such properties located in Singapore and the Australian cities of Sydney, Melbourne, Brisbane and Perth.

Real estate company Keppel Corporation (SGX: BN4), one of the notable blue chip companies in Singapore that is part of the benchmark Straits Times Index (SGX: ^STI), is deemed to own almost three-quarters of the REIT through various subsidiaries. This makes Keppel REIT’s results notable for Keppel Corp’s investors too.

The REIT”s net property income growth was mainly a result of improved performance from Ocean Financial Centre in Singapore and additional contribution from 8 Exhibition Street in Melbourne, which was acquired this year.

Keppel REIT’s quarterly pre-tax returns grew 18% to S$40.6m compared to a year ago, due mainly to higher net property income, interest income, and share of results of associates and joint ventures. Growth in those areas had more than offset increase in expenses such as borrowing costs and management fees.

The pre-tax returns helped to drive the growth in the REIT’s distributable income.

As REITs have highly leveraged capital structures, and Keppel REIT is no exception, it pays for investors to keep an eye on the balance sheet.

Keppel REIT’s aggregate leverage stands at 43.9% as of Sep 2013. The total debt, including those of its associates, amounts to S$3b.

The REIT’s manager had been proactive in capital management, having refinanced all loans that are due in 2013 and 2014. In addition, the debt-maturities for Keppel REIT are also well-staggered, as shown below:

Debt   Amount Due Date
S$825m 2015
S$474m 2016
S$661m 2017
S$665m 2018
S$382m 2019

Source: Keppel REIT’s Earnings Release

The average interest rate it is paying on those loans amount to 2.15% currently and 70% of the loans have fixed interest rates. This temporarily lowers the financial risks that the REIT’s unit holders have to bear if the prevailing borrowing costs were to rise in the near future.

For some operational highlights, investors might be glad to know that the REIT’s properties are well occupied. The average occupancy across Keppel REIT’s portfolio is at 99.4% with a weighted average lease expiry (WALE) of 6.4 years.

Going forward, the REIT’s manager “remains confident of [its] performance as nearly all assets are fully committed with long tenured leases, there are no refinancing requirements over the next 24 months and approximately 70% of the borrowings are at fixed interest rates.”

In addition, the manager “will continue to focus on maintaining strong occupancy for its portfolio of properties, as well as proactively managing leases due for rent review and renewal. It will also monitor interest rate and foreign exchange exposures so as to manage financial risks. The Manager will selectively pursue opportunities for strategic acquisitions so as to deliver long-term growth to Unitholders.”

Keppel REIT closed at S$1.245 on Monday. With a net asset value per unit of S$1.25 and an annualised DPU of 7.82 cents, that works out to a Price-to-Book of around 1 and an annualised distribution yield of 6.3%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.