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Keppel REIT Starts 2014 With Double Digit Growth

Having released its first quarter results yesterday evening, Keppel REIT (SGX: K71U) managed to achieve double-digit growth in its net property income. As the main vehicle for the ownership of commercial office assets for Keppel Land (SGX: K17), the REIT (real estate investment trust) has a portfolio of 10 commercial properties in total in Singapore and Australia that’s valued at over S$7.2 billion.

The two counters – Keppel REIT and Keppel Land – are in turn part of the conglomerate Keppel Corporation (SGX: BN4).

Keppel REIT’s Operating Results

Due to higher rents coming from Ocean Financial Centre and Prudential Tower, the trust was able to achieve a 14.7% year-on-year jump in net property income, ending the first quarter with S$39.5 million. Meanwhile, the REIT’s share of income from its associates grew by 12.6% to S$16 million for the quarter due to its interest in 33.3% of Marina Bay Financial Centre and One Raffles Quay.

That’s not all that was growing at the REIT though. Its distributable income also improved by 5.5% to S$55.1 million from a year ago. However, due to an increase in the REIT’s number of units outstanding, distributions per unit (DPU) actually remained unchanged from a year ago at 1.97 Singapore cents.

With an improving occupancy rate since 2011, the REIT ended its first quarter of 2014 with a higher-than-average occupancy rate of 99.8%; it was also another quarter where the REIT could successfully maintain its occupancy rates higher than its benchmarks.  In fact, its Singapore properties had performed very well as they were able to retain a 100% occupancy rate for yet another quarter.

Keppel REIT has managed to maintain its net asset value per unit at around S$1.39. Its gross borrowings stand at S$3.06 billion and it has an interest coverage ratio of 5.4 times. The average term of its debt is around 3.9 years with an average interest rate of 2.18%. With the interest rate environment facing upwards pressure in the future, the REIT might face higher borrowing costs going forward.

What’s next for the REIT?

The REIT’s management expects both the Singapore and Australian economy to be relatively stable while still displaying some growth. With that, the demand for their properties should also be sustainable.

The REIT closed on Monday at S$1.17 and is valued at 0.8 times its book value while carrying an annualised distribution yield of 6.7% based on its distributions for the first quarter.

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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 Stanley Lim doesn’t own shares in any companies mentioned.