6 Things Investors Should Know About This REIT That Is Part Of The Straits Times Index Reserve List

Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is made up of 30 companies.

They include companies many Singaporeans are likely to be familiar with, such as: The world’s best digital bank and Singapore’s largest bank, DBS Group Holdings Ltd (SGX: D05); Singapore’s flag carrier, Singapore Airlines Ltd (SGX: C6L); and property giant, CapitaLand Limited (SGX: C31).

While the 30 companies carry heft in Singapore’s stock market – and some of them have huge roles to play in our local economy – they are not indispensable, in the sense that they can be booted out of the index and be replaced if their market capitalisation and/or trading liquidity starts shrinking.

Early last week, my Foolish colleague Chin Hui Leong introduced the newest list of five candidates that make up the STI Reserve List. These five stocks are next-in-line to replace any of the Straits Times Index’s constituents should they drop out.

The five stocks are are Singapore Post Limited (SGX: S08)Keppel REIT (SGX: K71U)Suntec Real Estate Investment Trust (SGX: T82U)First Resources Ltd (SGX: EB5) and Mapletree Commercial Trust (SGX: N2IU).

In this article, I want to zoom in on Keppel REIT. Here are six things investors should know about the real estate investment trust:

  1. Being a commercial REIT, Keppel REIT owns “interests in eight premium office assets with 11 office towers strategically located in the central business districts of Singapore, and key cities of Sydney, Melbourne, Brisbane and Perth in Australia.” As of 30 September 2016, around 90% of the REIT’s asset value is based in Singapore the remaining 10% is located in Australia.
  2. In Singapore, Keppel REIT owns 100% of Bugis Junction Towers, 99.9% of Ocean Financial Centre, and approximately 30% each of Marina Bay Financial Centre and One Raffles Quay.
  3. For the quarter ended 30 September 2016, Keppel REIT’s property income saw a 6.3% year-on-year decline to S$39.5 million. Property income consists of gross rent, car park income, and other income. Consequently, the REIT’s net property income fell by 5.4% year-on-year to S$31.6 million. Keppel REIT attributed the poor showing for the quarter to an absence of income from 77 King Street, which was sold in the first-quarter of 2016. Keppel REIT’s distribution per unit (DPU) for the quarter declined by 5.9% from 1.70 cents a year ago to 1.60 cents.
  4. All of the REIT’s leases expiring this year have been renewed. For the first nine months of 2016, rent reversion for new, renewal, forward renewal, and review leases were positive at around 3%. Also, proactive forward renewal efforts had brought down expiring leases to approximately 5% for 2017 and 2018.
  5. But the REIT warned in its latest earnings release that new office supply coming into the Singapore market over the next one to two years, along with slower economic growth, will “continue to pose challenges” for the commercial real estate sector.
  6. With its units closing at a price of S$1.055 last Friday, Keppel REIT is trading at 0.74 times book value and has a trailing distribution yield of 6.2%.

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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 Sudhan P doesn’t own shares in any companies mentioned.