Keppel Reit's Q3 DPU falls on property's sale

Keppel Reit's sale of a Sydney commercial building earlier this year affected its third-quarter results.

On a brighter note, the real estate investment trust (Reit) - which has a sizeable Singapore office portfolio - reported that rent reversion for new, renewal, forward renewal and review leases was positive at about 3 per cent for the first nine months of this year.

The manager of the Reit has also brought down expiring leases in 2017 and 2018 further to a minimal 5.2 per cent and 5.4 per cent respectively as at Q3 2016.

"The majority of the expiring leases in 2017 and 2018 are in their first renewal cycles and are likely to be renewed," the Reit's manager said on Tuesday.

It added that it will continue to actively engage tenants to renew and forward renew leases expiring next year and in 2018.

The Reit's lease expiry profile remained well spread out, with some 95 per cent of leases not due for renewal until 2018 and beyond; very limited new office supply in the Singapore CBD is expected between 2019 and 2021.

Keppel Reit highlighted that all its properties in Singapore's Raffles Place and Marina Bay precinct - namely Ocean Financial Centre (OFC), Marina Bay Financial Centre (MBFC) and One Raffles Quay (ORQ) - are fully leased.

Its overall portfolio too maintained a high occupancy rate of 99.5 per cent as at Q3 2016.

That said, the Reit manager acknowledged that new office supply over the next one to two years, coupled with slower economic growth, will continue to pose challenges for the Singapore office market.

The trust owns 99.9 per cent of OFC as well as one-third stakes in MBFC and ORQ.

The Reit posted distribution per unit (DPU) of 1.60 Singapore cents for the third quarter ended Sept 30, 2016, down from 1.70 Singapore cents in the same year-ago period.

The drop was mainly due to the absence of income contribution from the divestment of 77 King Street in Sydney in the first quarter of this year as well as due to a slightly larger unit base.

These were partially offset by higher property income from OFC.

Net property income slipped 5.4 per cent year on year to S$31.58 million in Q3 FY2016.

Property income (comprising rents, car park and other income) declined 6.3 per cent to S$39.53 million.

Share of results of associates rose 33.2 per cent to S$24.66 million and share of results of joint ventures doubled to S$7.89 million - due largely to higher share of contribution from MBFC and ORQ in Singapore and David Malcolm Justice Centre in Perth.

Excluding contribution from 77 King Street in Sydney, property income and net property income remained stable for Q3 FY2016.

The counter closed unchanged at S$1.115 on Tuesday, reflecting a 20.9 per cent discount to the adjusted net asset value per unit (excluding distributable income) of S$1.41 as at Sept 30, 2016; this was a tad lower than S$1.42 as at Dec 31, 2015.

The third-quarter distribution will be paid on Nov 25.

The payout reflects an annualised distribution yield of 5.85 per cent based on Tuesday's closing price.

Keppel Reit's aggregate leverage stood at 39 per cent as at Sept 30, 2016, unchanged from June 30, 2016.

The trust has completed all refinancing requirements for 2016 and 2017, with no refinancing needed until the second half of 2018.

The all-in interest rate was slightly lower at 2.53 per cent in Q3 FY2016 from 2.55 per cent in Q2 FY2016.

Over the same period, the interest coverage ratio improved to 4.7 times from 4.6 times.

This article was first published on Oct 19, 2016.
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