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Singapore’s Next Blue-Chip Idol: Keppel REIT

There are 30 blue-chip companies in the Straits Times Index (SGX: ^STI), but not all blue-chips can maintain their coveted position.

In September, the co-creators of Singapore’s stock market benchmark, the STI, announced some changes to the index as part of their routine review to ensure that the companies in the index continue to meet its requirements. Together with announcing changes, they also revealed the new STI reserve list.

Companies on the reverse list will replace any STI component that becomes ineligible due to corporate actions before the next review. One company on this new list is Keppel REIT (SGX: K17U).

A Closer Look

Keppel REIT is the owner of nine premium grade office buildings in Singapore and Australia.

Apart from having a sprawling property portfolio, the REIT’s leases span across a well-diversified tenant profile. Keppel REIT’s tenants come from various industries such as banking, insurance & financial services; government agencies; technology, media and telecommunications (TMT) sector; accounting & consultancy services; and legal sectors.

With the introduction out of the way, let’s look at its historical distributable income and distribution per unit.

Source: Keppel REIT earnings presentation; in S$ thousands, except DPU (cents)

Keppel REIT net property income has been fluctuating over the past three years. Looking at the distributable income, we can see a downward trend. Over the past three years, the REITs distributable income has declined 6.3% per year. The REITs DPU has also seen a similar downtrend moving from 6.8 cents in 2015 to 5.70 cents in 2015.

Moving on, we will take a look at the REIT’s debt profile.

Source: Keppel REIT earnings presentation

Keppel REIT has refinanced all its debt obligations for 2018 and is actively trying to refinance its 2019 debt.

Average leverage for the REIT come in at 38.6% which is some distance away from the regulatory 45% limit. The weighted average term to maturity for its debt was 2.9 years while the interest rate on the debt stood at 2.77%. Meanwhile, 77% of the REIT’s debt is on fixed-rate loans.

The REIT manager has done a sensitivity study to see how its DPU will be affected by rising interest rates. It noted that a 50 basis points (0.5%) increase in interest rates would result in a 0.10 cents decline on the REIT’s DPU.

To close, we can look at the REIT’s net asset value (NAV). From the table below, we can see Keppel REIT’s NAW has seen a slight decrease going from S$1.44 in 2015 to S$1.41 in 2017.

Source: Keppel REIT earnings presentation

The NAV however should see an increase after a property that is under development in Australia is completed.

Overall, Keppel REIT has been going through a rough patch in the last couple of years. The REIT’s results should see a slight improvement once its property under development in Australia (which is fully leased) is completed. Currently, Keppel REIT is trading at S$1.17 which is under its NAV.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own any of the shares mentioned.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.