The Motley Fool

9 Key Things That Investors Should Know About Keppel REIT’s Latest Earnings Update For 2018’s Third Quarter

On 15 October 2018, Keppel REIT (SGX: K71U) announced its third quarter earnings update for 2018.

As a quick introduction for better context before I discuss the company’s latest results, Keppel REIT has a focus on commercial properties and its portfolio currently consists of nine office assets located in Singapore and Australia. In Singapore, the REIT’s properties include Ocean Financial Centre, Bugis Junction Tower and more.

Here are nine key things that investors should know about Keppel REIT’s latest results:

1. In 2018’s third quarter, property income declined by 9.4% year-on-year to S$36.7 million while net property income fell by 10.9% to S$28.2 million.

2. Distribution per unit (DPU) was down by 2.9% to 1.36 cents compared to the same period a year ago.

3. Based on an annualised DPU of 5.60 Singapore cents (from the actual DPU of 4.20 cents for the first nine months of 2018) and the closing unit price of S$1.12 as of 16 October 2018, Keppel REIT has an annualised distribution yield of 5.4%.

4. As of 30 September 2018, the REIT’s gearing stood at 39.1%, which is only a small distance from the regulatory gearing ceiling of 45%.

5. The REIT’s committed occupancy rate stood at 98.0% at the end of the reporting quarter.

6. The weighted average lease-to-expiry was 5.7 years at the end of 2018’s third quarter. 7% of Keppel REIT’s leases remain for renewal and review in 2018. The REIT also reported a tenant retention rate of 84%.

7. Singapore and Australia currently account for 81.8% and 18.2%, respectively, of Keppel REIT’s rental income.

8. In the third quarter of 2018, HSBC signed a 10‐year lease for its new headquarters at Marina Bay Financial Centre Tower 2, with target occupation by April 2020. Keppel REIT also saw the take up of space by government agencies at Bugis Junction Towers in Singapore and at 275 George Street in Australia.

9. The REIT provided the following outlook in its latest earnings update:

“According to CBRE, office occupancy in Singapore’s core CBD rose quarter-on-quarter from 94.1% as at end June 2018 to 94.6% as at end September 2018. Average Grade A rents also increased from $10.10 psf pm to $10.45 psf pm. The office market outlook remains positive in view of a tapering supply pipeline and continued demand from a wide range of sectors.

In Australia, JLL reported an increase in national CBD office average occupancy from 90.1% as at end March 2018 to 90.6% as at end June 2018. Amidst a positive business outlook, healthy leasing activities were observed from various sectors including the finance, insurance and flexible working space industries, which are expected by JLL to contribute towards tightening vacancy and rental improvement.

Looking ahead, the Manager will remain focused on driving operational excellence to navigate the volatile macro‐economic environment, while capitalising on the improving office market to mitigate the impact of recent years’ declining rentals. A prudent capital management strategy will be maintained to optimise the REIT’s performance amidst rising interest rates.

Maximise dividends on your REITs with our brand-new Complete Guide To Buying The Best Singapore REITs. We reveal everything we think you need to know about finding the best REITs that hands you a fat dividend cheque ...even if you have no REITs experience at all! Get instant access to your 100% FREE, actionable, 42-page PDF guide here.

REIT’s performance amidst rising interest rates.The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.