Keppel REIT’s Latest Earnings: What Investors Should Know

Yesterday, Keppel REIT (SGX: K71U) released its earnings report for the quarter and year ended 31 December 2016.

As a quick introduction, the real estate investment trust (REIT) is an owner of eight commercial properties in Singapore and Australia. At the local front, Keppel REIT has stakes in premium grade buildings such as Ocean Financial CentreMarina Bay Financial CentreOne Raffles Quay, and Bugis Junction Towers.

You can read more about the REIT in here and catch up with the results from its previous quarter in here.

Financial highlights

The following’s a rundown on some of Keppel REIT’s latest financial figures:

  1. Keppel REIT’s property income (revenue from its properties) fell 6.5% year-on-year to $40 million in the reporting quarter. For the full year, property income was $161.3 million, down 5.3% compared to 2015.
  2. Net property income (NPI) also fell, retreating 9.6% year-on-year to $31.4 million for the fourth quarter. NPI for 2016 was $128.4 million, a 6.6% decline from 2015’s $137.5 million.
  3. Distribution per unit (DPU) for the fourth quarter was 1.48 cents, an 11.9% decline from the 1.68 cents paid out in 2015’s fourth quarter. For 2016, Keppel REIT’s DPU was 6.37 cents, some 6.3% lower than in 2015.
  4. As of 31 December 2016, the REIT’s assets under management stand at $8.4 billion. Keppel REIT ended 2016 with an adjusted net asset value per unit of $1.43, a modest increase from the $1.42 seen in 2015.

In all, Keppel REIT’s revenue and DPU for both its reporting quarter and the whole of 2016 have fallen compared to the same periods a year ago.

Moving on, Foolish investors may also want to keep an eye on the REIT’s debt profile and how it has changed. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. Changes to Keppel REIT’s debt profile over the past year are summarised in the table below:

Keppel REIT debt profile table
Source: Keppel REIT’s earnings presentations

There were some improvements seen in the REIT’s debt profile. Keppel REIT managed to lower its gearing ratio to 38.5% and increase the percentage of its fixed rate borrowings. The percentage of its unencumbered assets has also stepped up.

To be sure, the REIT’s gearing level is still on the higher end of things. Foolish investors should note that the Monetary Authority of Singapore has set a single-tier gearing ratio limit of 45% for REITs in Singapore.

Meanwhile, Keppel REIT also reported that there is no further refinancing needed for 2017.

Operational highlights and a future outlook

Keppel REIT’s property income fell in 2016 and the fourth quarter of the year due to the divestment of 77 King Street on 29 January 2016. Meanwhile, a lower contribution from Bugis Junction Towers also played a role.

Rental support is a factor to consider for some REITs. In Keppel REIT’s case, there was an 8.8% drop in rental support for the reporting quarter (from $4.6 million a year ago to $4.2 million) and an 18.2% fall for the whole of 2016 (from $20.5 million to $16.7 million).

Elsewhere, interest income fell 39.3% year-on-year to $5.6 million in the reporting quarter; there was a 25.7% decline to $27.5 million in 2016. Meanwhile, Keppel REIT’s share of results from associates rose 18.1% year-on-year to $19.9 million for the quarter and 10.3% to $83.5 million for the year. There was strong growth too in the REIT’s share of results of joint ventures; the metric surged over 50% to $7.7 million in the reporting quarter and jumped some 79.4% to $30.8 million for the entire year.

Keppel REIT has just 3.9% of its leases to be renewed in 2017. The REIT ended 2016 with a 99.2% occupancy rate, down slightly from the 99.3% seen at end-2015.

Regarding its future, Keppel REIT has a dour view. It commented in the earnings release:

“Looking ahead, the challenging global economic environment is expected to have a continued dampening effect on the Singapore office leasing market especially in 2017.

While Keppel REIT’s portfolio of quality assets and its high committed occupancy as at end-2016 will help the REIT weather the supply and demand imbalance in the office sector, Keppel REIT’s rental income is not immune to the general decline in rents in the Singapore office market.”

It’s worth noting that Singapore accounts for 89% of the REIT’s total assets under management.

Keppel REIT’s units last closed at $1.04 each yesterday. This translates to a historical price-to-book ratio of 0.73 and a trailing distribution yield of 6.1%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.