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Keppel REIT’s Latest Earnings: DPU Declines 13.6%

Yesterday, Keppel REIT (SGX: K71U) released its 2017 first quarter earnings report. The reporting period was from 1 January 2017 to 31 March 2017.

As a brief background, the real estate investment trust (REIT) is an owner of eight commercial real estate properties in Singapore and Australia. At the local front, it has stakes in premium grade buildings such as Ocean Financial Centre, Marina Bay Financial Centre, One Raffles Quay, and Bugis Junction Towers.

You catch up with the results from Keppel REIT’s last quarter here.

Financial highlights

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

1. Keppel REIT’s property income (revenue from its properties) fell 3.2% year-on-year to end at $39.9 million in the reporting quarter.

2. Net property income (NPI) for the quarter also fell, retreating 4.6% year-on-year to $31.4 million.

3. Distribution per unit (DPU) was 1.45 cents, a 13.7% decline from the 1.68 cents paid out in the first quarter last year.

4. As of 31 March 2017, assets under management stood at $8.4 billion. Keppel REIT ended the reporting quarter with an adjusted net asset value per unit of S$1.42, unchanged from a year ago.

Moving on, Foolish investors might 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. Keppel REIT”s debt profile is summarised below:

2017-04-19 Keppel REIT Debt Table
Source: Keppel REIT’s earnings presentations

There were some slight improvements to the REIT’s debt profile. Keppel REIT lowered its gearing ratio to 38.4% and increased the percentage of its unencumbered borrowings. To be sure, the REIT’s gearing level is still on the higher end.

Meanwhile, Keppel REIT has no refinancing requirements in 2017. Around 15% of its debt is due in 2018.

Operational highlights

Property income fell in part due to the divestment of 77 King Street in early 2016. Bugis Junction Towers also experienced a 20.2% decline in property income.

Rental support is a factor to consider for REITs. In Keppel REIT’s case, there was a 15.7% drop in rental support from $4.2 million in the first quarter of 2016 to $3.5 million in the reporting quarter.

Elsewhere, the REIT’s interest income fell 29.7% year-on-year to $6.1 million. Meanwhile, share of results from associates rose 23.2% to $23.1 million, and share of results of joint ventures climbed 22.2% to $8.3 million.

On a brighter note, Keppel REIT has nearly completed the renewal of all of its 2017 leases. The REIT ended the quarter with an overall 99.4% occupancy rate. Notably, over 50% of its leases (in terms of nett lettable area) are not due for renewal until 2022 and beyond.

Outlook

The REIT provided the following outlook in its earnings release:

“Looking ahead, the Manager remains cognisant of the uncertain global economic environment and competitive office leasing landscape in Singapore. The Manager will continue its proactive and disciplined approach to renew leases so as to retain tenants and mitigate leasing risk.

Borrowing costs are likely to increase as a consequence of the anticipated US rate hikes. The Manager will continue its prudent capital management approach to mitigate financing, interest rate and foreign exchange risks.

The Manager remains committed to a portfolio optimisation strategy that ensures the REIT’s portfolio remains relevant to tenants’ changing business needs, while providing sustainable returns to Unitholders in the long term.

The Manager will continue to seek selective acquisitions that offer stable income growth and capital appreciation over time. At the same time, the Manager is open to opportunistic divestments to unlock value for Unitholders.”

Keppel REIT’s units closed at a price of $1.07 each yesterday. This translates to a historical price-to-book ratio of 0.75 and a trailing distribution yield of around 5.7%.

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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.