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Tuesday, November 02, 2021

Keppel REIT Review @ 2 November 2021

Basic Profile & Key Statistics

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

Performance Highlight

For 9m 2021, property income, NPI and distributable income from operations have improved YoY mainly due to contributions from Victoria Police Centre in Melbourne, Pinnacle Office
Park in Sydney and Keppel Bay Tower in Singapore. The 9 months DPU has increased from 4.2 cents to 4.41 cents (assume 3Q distribute 100% of distributable income).

The new signing rent psf pm for Singapore offices is higher than expiring rents in 2022 but lower than expiring rents in 2023 and 2024.

In Jul 2021, KREIT has divested 275 George Street in Brisbane.

AEI is being carried out at 8 Chifley Square, but no information on the target completion date.

Related Parties Shareholding

  • REIT sponsor's shareholding is high at 40.154%
  • REIT manager's shareholding is high at 2.082%
  • Directors of REIT manager's shareholding is low at 0.06%

Lease Profile

  • Occupancy is slightly high at 97.1%
  • WALE is long at 6.1 years
  • Highest lease expiry within 5 years is low at 16.8% which falls in 2022
  • Weighted average land lease expiry is long at 87.03 years

Debt Profile

  • Gearing ratio is moderate at 37.6%. Include perpetual securities, gearing is at 42.1%.
  • Cost of debt is low at 1.99%
  • Fixed rate debt % is slightly low at 71%
  • Unsecured debt % is moderate at 77.7%
  • WADM is long at 3.3 years
  • Highest debt maturity within 5 years is slightly high at 34% which falls in 2024
  • Interest coverage ratio is slightly low at 3.9 times
  • Perpetual securities over debts is slightly high at 10.6%

Diversification Profile

  • Top geographical contribution is high at 66.5% 
  • Top property contribution is high at 31.4% 
  • Top 5 properties contribution is high at 78.9% 
  • Top tenant contribution is low at 8.9% 
  • Top 10 tenants contribution is moderate at 36.6%

Key Financial Metrics

  • Property yield is low at 4.5% 
  • Management fees over distribution is high at 23.1% in which unitholders receive S$ 4.33 for every dollar paid 
  • Distribution on capital is low at 2.4%
  • Distribution margin is high at 57.8%
  • 0.5% of the past 12 months DPU is from income support

Trends

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

Relative Valuation

  • P/NAV - Average for 1y, 3y and 5y
  • Dividend Yield - Average for 1y; Above average for 3y and 5y

Author's Opinion

 Favorable Less Favorable
High REIT Sponsor's ShareholdingLow Directors of REIT Manager's Shareholding
High REIT Manager's ShareholdingHigh Top Geographical Contribution
Long WALEHigh Top Property & Top 5 Properties Contributions
Well Spread Lease ExpiryLow Property Yield
Long Weighted Average Land Lease ExpiryNon Competitive Management Fees
Low Cost of DebtLow Distribution on Capital
Long WADM 
Low Top Tenant Contribution 
High Distribution Margin 
Property Yield Uptrend 
Distribution on Capital Uptrend
KREIT fundamentals and performance has shown sign of improvement as compared to the previous year. For the Keppel Corporation proposed the acquisition of SPH, there is a rival offer by consortium Cuscaden Peak, as announced on 29 October. Cuscaden Peak's offer is S$2.10 per SPH share, all in cash. Quite an interesting event, let's see how will Keppel Corp react to it. Both the share prices for KREIT and SPH REIT have increased after this news. 

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee 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 and 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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