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Keppel REIT’s Latest Quarter Earnings: What Investors Should Know

Keppel REIT (SGX: K71U) released its fiscal second-quarter financial results after market closed this evening. The reporting period was from 1 April 2017 to 30 June 2017.

The REIT prides itself to be “one of Asia’s leading REITs with the youngest and largest portfolio of premium Grade A commercial assets in Singapore’s prime business and financial districts”. Other than Singapore, it has assets in main Australian cities such as Sydney, Melbourne, Brisbane and Perth. The REIT’s sponsor is Keppel Land Limited, the property arm of Keppel Corporation Limited (SGX: BN4).

You can check out the previous quarter’s results here.

With that, let’s have a brief glance at the latest financial numbers from Keppel REIT:

1. Property income came in at S$39.8 million for the latest quarter. This was a decline from S$40.6 million achieved a year ago.

2. Consequently, net property income came down 1.7% year-on-year to S$31.9 million.

3. The reporting quarter’s distribution per unit (DPU) was at 1.42 cents, falling from 1.61 cents given out in the second quarter of 2016.

4. The net asset value (NAV) per unit was at S$1.41, as of 30 June 2017. At the end of 2016, the figure stood at S$1.44.

On top of looking at the financial performance, we should also keep a keen eye on a REIT’s debt profile as it clues us in on the sustainability of a REIT.

Source: Keppel REIT’s Earnings Presentation

Keppel REIT had leverage ratio of 38.5%, well below the regulatory limit of 45%. However, this was a slight uptick from the previous quarter’s figure of 38.4%.

77% of its borrowings are on fixed-rate and it has no refinancing requirements until 2018, where 13% of its total borrowings of around S$3.3 billion will be due.

Operational highlights

For the first half of 2017, distributable income to unitholders came down around 11% year-on-year to S$95.5 million. This was mainly due to the absence of income from 77 King Street in Sydney (divested in January 2016), lower one-off income, lower income contribution from Bugis Junction Towers and the absence of other gains distribution.

The overall committed occupancy for the REIT’s portfolio came in at 99.8%, with a tenant retention rate of 85%. The weighted average lease expiry for its top 10 tenants and overall portfolio was at around nine years and six years respectively. It has only 2% of the net lettable area of leases expiring for the rest of 2017.

Looking Ahead

Keppel REIT ended off the earnings release with the following outlook:

“The US Federal Reserve raised interest rates with a 25 basis point hike in June 2017. However, the impact of rising rates to Keppel REIT is expected to be mitigated by active measures the Manager has taken to reduce interest rate risk. At the same time, the Manager will continue to diversify its funding sources and lengthen its debt profile to mitigate funding related risks.

The REIT’s leasing risk is minimal with only 2% of the NLA of leases expiring for the rest of 2017. Nevertheless, a proactive approach to tenant and lease management remains a priority for the Manager.

Looking ahead, the Manager remains committed to its long term goal of achieving stable and sustainable income for Keppel REIT Unitholders.”

The REIT closed at S$1.17 on Tuesday. This gives a historical price-to-book ratio of 0.83 and a trailing yield of 5.06%.

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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.