Keppel REIT Review @ 27 July 2023

Basic Profile & Key Statistics

• Main Sector(s): Office
• Country(s) with Assets: Singapore, Australia, South Korea & Japan
• No. of Properties (exclude development/associate/fund): 12

Key Indicators

Performance Highlight

Property income has improved YoY however NPI remains similar due to higher property expenses. The interest income has decreased YoY mainly due to the repayment of advances by an associate in 1H2023 while borrowing costs have increased significantly. Share of results of associates and JVs are less meaningful here, therefore, it would be better to take the NPI from associates and joint ventures from the financial statement, which has increased YoY. The distribution to unitholders and DPU declined slightly YoY due to the anniversary distribution of S$ 10 million, despite a 10.5% decline in distributable income.

Rental Reversion

The average signing rent in 1H 23 was S$ 12.35 psf, which is higher than those expiring in 2023, 2024 and 2025.

Development

Blue & William achieved practical completion on 3rd April and started contributing income. At this moment,  Blue & William achieved committed occupancy of 37.7% and is receiving a rental guarantee on unlet space for a period of up to three years.

Asset Enhancement Initiative

Solar panels installation for 8 Exhibition Street has been completed and is to be commissioned in 3Q this year.

Related Parties Shareholding

• REIT Sponsor's Shareholding: Above median by 20% or more
• REIT Manager's Shareholding: Above median by 20% or more
• Directors of REIT Manager's Shareholding: Below median by 20% or more

Lease Profile

• Committed Occupancy: ± 5% from median
• WALE: Above median by 20% or more
• Highest Lease Expiry within 5 Years:  ± 10% from median; Falls in 2026
• Weighted Average Land Lease Expiry: Above median by 20% or more

Debt Profile

• Gearing Ratio: ± 10% from median
• Gearing including Perps: ± 10% from median
• Cost of Debt: Below median by 20% or more
• Fixed Rate Debt %: ± 10% from median
• Unsecured Debt %: Below median by 10% or more
• WADM: ± 10% from median
• Highest Debt Maturity within 5 Years: Below median by 20% or more; Falls in 2024
• Interest Coverage Ratio: Below median by 10% or more

Diversification Profile

• Top Geographical Contribution: Above median by 20% or more
• Top Property Contribution: Above median by 20% or more
• Top 5 Properties' Contribution: Above median by 20% or more
• Top Tenant Contribution: Below median by 10% or more
• Top 10 Tenants' Contribution: ± 10% from median

Key Financial Metrics

• Property Yield: Below median by 20% or more
• Management Fees over Operating Distributable Income: Above median by 20% or more; $2.65 distribution for every dollar paid 
  
• Operating Distributable Income on Capital: Below median by 20% or more
• Operating Distributable Income Margin: ± 10% from median
• Operating Distribution Proportion: Below median by 10% or more

DPU Breakdown

• TTM DPU Breakdown
• 64.6% from Operation 
• 24.3% from Management Fees Paid in Units
• 2% from Income Support
• 9.1% from Divestment Proceeds

Trends

• Uptrend: DPU from Operation, Operating Distributable Income on Capital
• Slight Uptrend: Property Yield
• Flat: NAV per Unit, Interest Coverage Ratio, Operating Distributable Income Margin
• Slight Downtrend: Committed Occupancy

Relative Valuation

• Dividend Yield: Average for 1y; Above +1SD for 3y & 5y
• P/NAV: Average for 1y; Below -1SD for 3y & 5y

Author's Opinion

Favorable	Less Favorable
High REIT Sponsor's Shareholding	Low Directors of REIT Manager's Shareholding
High REIT Manager's Shareholding	High Perpetual Securities %
Long WALE	Low Unsecured Debt %
Long Weighted Average Land Lease Expiry	Low Interest Coverage Ratio
Low Cost of Debt	High Top Geographical Contribution
Well Spread Debt Maturity	High Top Property & Top 5 Properties' Contributions
Low Top Tenant Contribution	Low Property Yield
DPU from Operation Uptrend	Non Competitive Management Fees
Operating Distributable Income on Capital Uptrend	Low Operating Distributable Income on Capital
	Low Operating Distribution Proportion

As compared to the previous half-yearly, despite improvement in NPI, DPU has declined slightly. As for debt maturity, there is only 2% of debt maturing in the coming 6 months and 22% would be expiring in 2024 with the majority in 2Q 2024. Coupled with a moderate fixed rate proportion at 76%, the impact of interest rate hikes should be minimal for FY23.

For more information, check out:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and details of Singapore REIT

REIT Review - List of previous REIT review posts

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my findings and should not be considered professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.