Keppel REIT Analysis @ 20 October 2020

Basic Profile & Key Statistics

Keppel REIT (KREIT) is an office REIT that owns 9 properties across Singapore, Australia and South Korea. Acquisition of Pinnacle Office Park is targeted to complete by 4Q, once completed, it would be the 10th property for KREIT.

Quarter Performance Review

Property Income, NPI and distributable income from operations YoY increased by 5.7%, 7.2% and 4.6% respectively, mainly due to contributions from 311 Spencer Street after completion on 9th July 2020.

The proposed acquisition of Pinnacle Office Park in Sydney is expected to complete by 4Q 2020. It was 100% funded by debt and should further improve distribution from operations moving forward. The gearing ratio is expected to rise to around 36.9% upon completion.

Lease Profile

Occupancy is high at 98.3%. WALE is lengthened to 7.1 years where the highest lease expiry of 17.6% falls in the year 2022. Judging from the annual reports, WALE by NLA and WALE by GRI is very similar for KREIT. Weighted average land lease expiry is long at 87.89 years. 

Debt Profile

Gearing ratio reduced from 36.3% to 35%. Cost of debt is reduced to 2.39%. Fixed-rated debt % and unsecured debt % are moderate at 80% and 71.6% respectively. Interest cover ratio improved to a moderate level of 3.9 times. WADE is long at 3.3 years where the highest debt maturity of 36% falls in the year 2024.

Diversification Profile

Top geographical and top property contributions are high at 72.1% and 40.4% respectively. Top tenant contribution is low at 7% while top 10 tenants contribution is moderate at 35.5%. KREIT main revenue is from Singapore, followed by Australia and South Korea.

Key Financial Metrics

Property yield and distribution on capital are low at 3.4% and 2.8% respectively. Management fee is not competitive in which unitholders receive S$ 4.08 for every dollar paid to manager. Distribution margin is high at 65.9%. 9.9% of past 12 months DPU is from distribution from asset disposal.

Trends

DPU and property yield are on a downtrend, but DPU has since stablizied starting 2Q 2017. NAV per unit is on a slight downtrend. Interest cover ratio maintain flat. Distribution margin is on a slight uptrend.

Relative Valuation

i) Average Dividend Yield  - Average yield at 5.23%, apply the annualized DPU of 5.6 cents will get S$ 1.07. 

ii) Average Price/NAV - Average value at 0.81, apply the latest NAV of S$ 1.354 will get S$ 1.10.

Author's Opinion

Favorable	Less Favorable
High Occupancy	Concentrated Debt Maturity
Long WALE	High Top Geographical Contribution
Well Spread Lease Expiry	High Top Property Contribution
Long Weighted Average Land Lease Expiry	Low Property Yield
Low Cost of Debt	Low Distribution on Capital
Long WADE	Non Competitive Management Fee
Low Top Tenant Contribution	Moderate Distribution from Asset Disposal
High Distribution Margin	DPU Downtrend
	Property Yield Downtrend

Part of KREIT fundamental is improved in this quarter, for instance, WALE, interest cover ratio, cost of debt, etc. Wth the latest acquisition of 311 Spencer Street and upcoming acquisition of Pinnacle Office, KREIT income would becoming more diversified moving forward.

For the past 12 months, 9.9% of KREIT DPU is from distribution from asset disposal. It is still unclear whether 311 Spencer Street and Pinnacle Office contribution would be able to cover this gap as well as whether management would continue to provide such top up subsequently. Guess we would have to wait for next quarter financial statement to learn more.

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 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.