Keppel REIT is a REIT listed in Singapore with a portfolio of Grade A commercial assets. They were listed in the Singapore Exchange in April 2006. As of the date of writing, they have a portfolio of property spanning across Singapore, Australia and South Korea.
They are sponsored by Keppel Land Limited which is a wholly-owned subsidiary of Keppel Corporation Limited. The REIT manager on the other hand is managed by Keppel REIT Management Limited. They are a wholly-owned subsidiary of Keppel Capital Holdings Pte Ltd. For those who do not know, Keppel Capital is a premier asset manager with a diversified portfolio in key global markets. This is no doubt a plus to Keppel REIT being able to leverage on the Keppel Capital’s expertise.
In this post, we will look into Keppel REIT FY20 performance to see how it has performed. Hopefully, this will be insightful to your analysis.
1) Proposed Acquisition of Keppel Bay Tower
One of the key events in FY20 is the proposed acquisition of Keppel Bay Tower which was announced on December 2020. This is a Grade A 18 storey office commercial buildings located in Harbourfront. The proposed acquisition is expected to be completed in 2Q21.
Keppel Bay Tower enjoys a committed occupancy rate of 99.2% (As at 30 June 2020) spreading across 29 tenants.
2) Completed acquisition of Pinnacle Office Park
On 31 December 2020, the REIT Manager has further announced that they have completed their acquisition of Pinnacle Office Park. The building is a freehold Grade A commercial property located in Macquarie Park, Sydney. This acquisition is a plus as it further expands Keppel REIT Australia Portfolio. Pinnacle Office Park currently enjoys a committed occupancy rate of 96.9%.
3) Commencement of the 30-year lease for Victoria Police’s new headquarters
311 Spencer Street is an acquisition that was completed on 31 July 2017. It was acquired with the intention to be developed and subsequently leased out to the State of Victoria. In July 2020, Keppel REIT has announced that the Victoria Police Centre has received its Certificate of Practical Completion. With this, the property will then be leased out to the Minister for Finance for the State of Victoria for a period of 30 years.
We view this as a plus for a number of reasons:
- Given that the property is leased to the State of Victoria, this would be deemed as a secured tenant being a governmental body.
- The lease is for a period of 30 years which would give Keppel REIT a stable and secure income for the next 30 years.
4) Stable overall occupancy rate from FY17 to FY20
| FY17 | FY18 | FY19 | FY20 | |
| Occupancy Rate | 99.70% | 98.40% | 99.10% | 97.90% |
In terms of its overall occupancy rate, Keppel REIT has reported a fairly stable and strong occupancy rate. Looking at their occupancy rate from FY17 to FY20, it has been in the range of 97% to 99.7%. This is comparably well when compared to the industry average.
If we were to take Singapore CBD office market as a benchmark. Keppel REIT has a fairly healthy occupancy rate of 97.90% as compared to the Singapore CBD average of 93.8%.
However, it is worth pointing out that the overall occupancy rate of Keppel REIT is based on a blended rate (Singapore, Australia and Korea).
5) Increased in financial performance in FY20
| SGD in 000s | FY17 | FY18 | FY19 | FY20 |
| Revenue | 164,516 | 165,858 | 164,053 | 170,223 |
| Net Property Income | 131,200 | 133,155 | 128,899 | 135,479 |
| Share of results of associates | 83,795 | 73,720 | 77,897 | 88,215 |
| Share of results of joint ventures | 31,959 | 30,170 | 28,525 | 29,356 |
Keppel REIT has reported fairly favourable results in FY20. Net Property Income has improved from SGD 128.9 mil in FY19 to SGD 135.5 mil in FY20. Similarly, their share of results from associates and joint ventures has improved as well.
The overall improvement is mainly attributable to:
- The full-year contribution from T Tower which was acquired in May 2019.
- Contribution from Victoria Police Centre which achieved practical completion on July 2020.
Going forward, we would expect the financial performance to further strengthen with the full-year contribution from Victoria Police Centre kicking in as well as the contribution from the Keppel Bay Tower and Pinnacle Office Tower.
6) Slight drop in distribution per unit in FY18 but growing from FY18 to FY20
| SGD in cents | FY17 | FY18 | FY19 | FY20 |
| Distribution Per Unit | 5.70 | 5.56 | 5.58 | 5.73 |
In terms of its distribution per unit, Keppel REIT has a slight decrease in DPU in FY8 but has since picked up. In FY20 itself, they have reported a distribution per unit of 5.73 cents. Based on their closing price as at 31 December 2020 of SGD 1.12, this would give investors a yield of 5.1%.
We will let you decide if this is a worthwhile investment.
Read More: Why you should never buy a REIT purely based on its dividend yield
7) Gearing at a healthy range
As at 31 December 2020, Keppel REIT has a gearing of 37.3%. This is way below its permissible limit which will give them ample debt headroom for further enhancement and asset acquisition initiatives. From its total debt, approximately, 74% of the total are fixed rate in nature reducing their interest rate risk.
Summary
Based on our analysis, Keppel REIT performance has been fairly okay. Its occupancy rate has always been in a healthy range. However, the financial performance has not always been on an increasing trend which is less favourable. Nevertheless, REIT manager proactive acquisition and development, has contributed to the growth of Keppel REIT.
What are your thoughts on Keppel REIT? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.
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I don’t see it growing. Yield has been supported by Keppel artificially through rental support. When they pull the plug we’ll be sub 5% with not much growth in the pipeline.
I think most analysts are rating it negatively at this point.