Keppel REIT Management Limited, the Manager of Keppel REIT, is pleased to announce that the REIT achieved $48.1 million in DI for 1Q 2017. DPU for the quarter was 1.45 cents and translates to an annualised distribution yield of 5.5%, based on the market closing price per Unit of $1.05 as at 31 March 2017.
- 1.45 cents (1Q FY17)
Keppel REIT achieves distributable income of $48.1 million for 1Q 2017
Minimal leasing risks for 2017, with only 2.8% and 1.7% of leases due for renewal and review respectively
First Quarter 2017 (1Q 2017) Results Highlights
- Distributable income (DI) to Unitholders was $48.1 million.
- Distribution per Unit (DPU) of 1.45 cents and an annualised distribution yield of 5.5%.
- All-in interest rate of 2.57% and interest coverage ratio of 4.6 times.
- Aggregate leverage at 38.4%.
- Portfolio committed occupancy rate of 99.4% and tenant retention rate of 87%.
- Minimal leasing risks for 2017, with only 2.8% and 1.7% of leases due for renewal and review respectively.
Financial Performance & Capital Management
Keppel REIT Management Limited, the Manager of Keppel REIT, is pleased to announce that the REIT achieved $48.1 million in DI for 1Q 2017. DPU for the quarter was 1.45 cents and translates to an annualised distribution yield of 5.5%, based on the market closing price per Unit of $1.05 as at 31 March 2017.
On a year-on-year (y-o-y) basis, DI for 1Q 2017 was 11.6% lower compared to 1Q 2016 due mainly to absence of income from the divested 77 King Street in Sydney in January 2016, lower income contribution from Bugis Junction Towers, as well as absence of other gains distribution. Property income and net property income for 1Q 2017 also declined correspondingly by 3.2% and 4.6% y-o-y respectively.
For 1Q 2017, share of results of associates grew 23.2% y-o-y to $23.1 million. This was due mainly to one-off income from One Raffles Quay and Marina Bay Financial Centre. Share of results of joint ventures increased 22.2% y-o-y to $8.3 million as a result of higher income contribution from Keppel REIT’s share in David Malcolm Justice Centre in Perth.
Keppel REIT’s all-in interest rate was 2.57% and interest coverage ratio at 4.6 times for 1Q 2017. The weighted average term to maturity of borrowings was 3.2 years and aggregate leverage at 38.4% as at end of 1Q 2017.
Notwithstanding that the REIT has no refinancing requirements till 2018 and beyond, the Manager is proactively reviewing early refinancing of loans, as well as exploring alternative funding sources. This includes the issuance of a seven-year $75 million Medium Term Notes (MTN) at a fixed-rate of 3.275% on 6 April 2017. The proceeds from the MTN will be applied towards the refinancing of existing borrowings.
Portfolio Performance
In managing the office space glut over the last few years, the Manager has been adopting a tenant-centric approach in its leasing efforts. Continuous tenant engagement efforts saw portfolio tenant retention rate of 87% for 1Q 2017.
Such efforts also helped Keppel REIT maintain a high committed portfolio occupancy of 99.4% as at end-March 2017 despite the oversupply in the office market. Occupancies for the REIT’s properties in Singapore and Australia were 99.3% and 99.7% respectively, above Singapore’s core CBD of 95.6%1 and Australia’s national CBD office market of 88.1%1.
In Singapore, the Manager has leased almost all the returned spaces at Bugis Junction Towers, bringing committed occupancy up to 95.9% as at end-March 2017. At the same time, new leases signed at 8 Exhibition Street in Melbourne saw the building’s committed occupancy increase to 99.7%.
The REIT has only 2.8% and 1.7% of leases (by net lettable area) due for renewal and review in 2017 respectively, thereby minimising leasing risks for the REIT for the rest of the year. The WALE for Keppel REIT’s top 10 tenants and overall portfolio stands at nine years and six years respectively.
Looking Ahead
The Singapore economy grew 2.5% y-o-y in 1Q 2017 based on advance estimates by the Ministry of Trade and Industry. Full-year growth for 2017 is projected at between 1% and 3%.
CBRE opined that concerns around supply overhang from the new office projects are dissipating as soon-to-be completed developments are now reporting stronger pre-commitments. Leasing activities have increased, with demand from tenants in the banking and finance sector, as well as expansion in the technology and media sector. Overall occupancy for Singapore’s core CBD office market was 95.6% in 1Q 2017, down slightly from 95.8% in 4Q 2016.
Meanwhile, average Grade A rent eased further to $8.95 psf in 1Q 2017, from $9.10 psf in 4Q 2016. CBRE believes that the office market may see a slight rebound by end-2017, followed by a more sustained market recovery in 2018. This recovery, however, is expected to be mixed, with Grade A offices expected to be the main beneficiary of any potential uplift in rents.
In Australia, the economy recorded a 2.4% growth for 2016, driven mainly by stronger household consumption. The Reserve Bank of Australia expects growth of between 2% and 3% for 2017, and between 2.5% and 3.5% for 2018. Jones Lang LaSalle reported that occupancy for Australia’s national CBD office market remained steady at 88.1% as at end-December 2016. Leasing activities remained strong in the CBDs of Sydney and Melbourne, while the CBDs in Brisbane and Perth showed early signs of recovery.
Looking ahead, the Manager remains cognisant of the uncertain global economic environment and competitive office leasing landscape in Singapore. The Manager will continue its proactive and disciplined approach to renew leases so as to retain tenants and mitigate leasing risk.
Borrowing costs are likely to increase as a consequence of the anticipated US rate hikes. The Manager will continue its prudent capital management approach to mitigate financing, interest rate and foreign exchange risks.
The Manager remains committed to a portfolio optimisation strategy that ensures the REIT’s portfolio remains relevant to tenants’ changing business needs, while providing sustainable returns to Unitholders in the long term. The Manager will continue to seek selective acquisitions that offer stable income growth and capital appreciation over time. At the same time, the Manager is open to opportunistic divestments to unlock value for Unitholders.
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Important Notice
The past performance of Keppel REIT is not necessarily indicative of its future performance. Certain statements made in this presentation may not be based on historical information or facts and may be “forward-looking” statements due to a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital availability, competition from similar developments or shifts in expected levels of property rental income, changes in operating expenses, including employee wages, benefits and training, property expenses and governmental and public policy changes, and the continued availability of financing in the amounts and terms necessary to support future business.
Prospective investors and unitholders of Keppel REIT (“Unitholders”) are cautioned not to place undue reliance on these forward-looking statements, which are based on the current view of Keppel REIT Management Limited, as manager of Keppel REIT (the “Manager”) on future events. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information, or opinions contained in this presentation. None of the Manager, the trustee of Keppel REIT or any of their respective advisors, representatives or agents shall have any responsibility or liability whatsoever (for negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially. The value of units in Keppel REIT (“Units”) and the income derived from them may fall as well as rise. Units are not obligations of, deposits in, or guaranteed by, the Manager or any of its affiliates. An investment in Units is subject to investment risks, including the possible loss of the principal amount invested.
Investors have no right to request the Manager to redeem their Units while the Units are listed. It is intended that Unitholders may only deal in their Units through trading on Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing of the Units on SGX-ST does not guarantee a liquid market for the Units.