The Latest Earnings From Keppel REIT: An Increase In Distributable Income

Keppel REIT (SGX: K71U) is a real estate investment trust that focuses on commercial properties. It was listed in 2006 and has a total of nine properties ( five in Singapore and four in Australia) as of 31 December 2015.

The REIT released its results for the whole of 2015 yesterday evening. Let’s have a look at it to better understand how Keppel REIT has performed over the last year.

The REIT reported total property income of S$170.3 million, down 7.5% from a year ago. As a result of a slight 0.7% increase in property expenses, net property income had declined by 9.2% to S$137.5 million. The sale of Prudential Tower in September 2014 had pressured Keppel REIT’s top-line, though higher contributions from Ocean Financial Centre and Bugis Junction Towers had provided some offset.

In any case, Keppel REIT had distributable income of S$217.3 million in 2015 compared to S$206.1 million in 2014. This is an increase of 5.4%. The higher distributable income was attributed to (1) higher property income from assets in both Singapore and Australia and (2) a higher share of results from associates and joint ventures.

What is interesting is despite the increase in distributable income, the REIT’s distribution per unit (DPU) for 2015 had ultimately decreased from S$0.0723 in 2014 to S$0.068 in the reporting year. This would mean at the REIT’s current price of S$0.88, it has a distribution yield of 7.7%.

On a more positive note, the REIT’s net gearing level fell slightly from 42.6% at end-September 2015 to 39.3% as of 31 December 2015. Some important details about the REIT’s balance sheet and changes over the past year can be seen below:

Keppel REIT's balance sheet
Source: Keppel REIT’s earnings reports

In addition, 70% of Keppel REIT’s debt (as of the end of 2015) have fixed interest rates. The REIT’s management also managed to refinance almost 100% of its 2016 loan maturities. This may give the REIT some stability during these volatile times in the financial markets, which can make refinancing more challenging or costly.

The REIT’s Net Asset Value (NAV) per unit increased from S$1.37 from end-September 2015 to S$1.42 at end-December 2015. This means that at current prices, the REIT is trading at a 38% discount to its NAV.

Lastly, Keppel REIT also announced on 17 January 2016 that it was divesting one of its properties in Sydney, Australia. The divestment, which is expected to be completed in the first-quarter of 2016, will fetch A$44 million more than the price it had paid in 2010 to buy the property.

It looks like Keppel REIT came in with a rather stable performance for the year, with its distributable income rising. It is also actively looking at recycling its assets, as evident from its recent divestments. One area investors may want to watch though is the REIT’s declining property income.

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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 Esjay doesn't own shares in any companies mentioned.