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Tuesday, January 26, 2021

Keppel REIT Review @ 26 January 2021

Basic Profile & Key Statistics

Keppel REIT (KREIT) is an office REIT that owns 10 properties across Singapore, Australia and South Korea.


Performance Review

Property Income, NPI and distributable income from operations YoY increased by 12.6%, 15% and 12.6% respectively. The increase was mainly due to contributions from Victoria Police Centre (311 Spencer Street) after completion on 9th July 2020 as well as lower borrowing costs.
Pinnacle Office Park acquisition was completed on 31 December 2020. The proposed acquisition of Keppel Bay Tower is expected to completed by 2Q 2021 IF resolution is approved at EGM which is targeted to be held in 1Q 2021. This acquisition would be financed by debt and private placement.

Lease Profile

  • Occupancy is high at 97.9%.
  • WALE is long at 6.7 years where the highest lease expiry of 18.8% falls in 2022.
  • Weighted average land lease expiry is long at 87.64 years.


Debt Profile

  • Gearing ratio is moderate at 37.3%.
  • Cost of debt is low at 2.4%.
  • Fixed rate debt % is slightly low at 74%.
  • Unsecured debt is moderate at 73.6%.
  • WADE is slightly long at 3.2 years where the highest debt maturity of 36% falls in 2024.
  • Interest coverage ratio is slightly low at 3.4 times.


Diversification Profile

  • Top geographical contribution is high at 68.6%
  • Top property contribution is high at 34.7%.
  • Top tenant contribution is low at 7.8%.
  • Top 10 tenants contribution is moderate at 35.9%.

Key Financial Metrics

  • Property yield is low at 3.7%
  • Management fees over distribution is high at 23.9% in which unitholders receive S$ 4.18 for every dollar paid.
  • Distribution on capital is low at 2.8%
  • Distribution margin is high at 61.4%.
  • 5.1% of the past 12 months DPU is from distribution from asset disposal.


Trends

  • Slight Uptrend - Distribution Margin
  • Flat - Distribution on Capital
  • Slight Downtrend - NAV per Unit, Interest Coverage Ratio, Property Yield
  • Downtrend - DPU


Relative Valuation

  • Dividend Yield -  Past 4 quarters DPU @ 5.73 cents / average yield @ 5.23% = S$ 1.10
  • Price/NAV - NAV @ S$ 1.32 x average P/NAV @ .81= S$ 1.07


Author's Opinion

 Favorable Less Favorable
High OccupancyConcentrated Debt Maturity
Long WALEHigh Top Geographical Contribution
Well Spread Lease ExpiryHigh Top Property Contribution
Long Weighted Average Land Lease ExpiryLow Property Yield
Low Cost of DebtNon Competitive Management Fee
Low Top Tenant ContributionLow Distribution on Capital
High Distribution MarginDPU Downtrend

This quarter's presentation shows that KREIT is able to increase DPU without capital top-up after the contribution from Victoria Police Centre. Moreover, this is before income contribution for Pinnacle Office Park income which was acquired on 31 December 2020. As for the proposed acquisition of Keppel Bay Tower, below are some snapshots extracted from the announcement:


As per Pro Forma information, DPU is accretive with and without income support; NAV per Unit is slightly dilutive; gearing ratio would increase slightly to 38.1%. Moving forward, contributions from Pinnacle Office Park and Keppel Bay Tower (if approved) should further improve KREIT performance and diversification.

For more information, you could refer to:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

REIT-TIREMENT Patreon - Support this blog as a Patron and get SREITs Dashboard PDF

REIT Investing Community - Facebook Group where members share and discuss REIT topic


*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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