10 Things You Must Know About Keppel REIT

Keppel REIT was listed on 28 April 2006 as K-REIT Asia, its former name. It had 4 office buildings worth S$ 631 million in its initial portfolio. Since then, it expanded its portfolio aggressively and was renamed to its current name in 2012. As at 31 December 2016, Keppel REIT’s portfolio is made up of 8 office assets worth S$ 8.4 billion.

In this article, I’ll list down 10 things you need to know about Keppel REIT before you invest.

#1: Stock Symbol

Ticker Symbol: SGX: K71U
Market Capitalization: S$ 4.45 billion (18 January 2018)

Share Price: S$ 1.33 (20 January 2018)

Industry: Reit

#2: The Business

Keppel REIT’s office assets are located in Singapore and Australia. They are:

Singapore

The Singapore portfolio accounts for 89% of Keppel REIT’s total asset under management (AUM) of S$ 8.4 billion in 2016. These properties include:

1. Ocean Financial Centre
   Keppel REIT has 99.9% interest in Ocean Financial Centre, a prime  43-storey Grade A building located at the intersection of the Raffles Place and Marina Bay financial precincts. In 2016, it was occupied by 60 tenants with key tenants such as ANZ, BNP Paribas, and Drew & Napier. This building has contributed S$ 88.9 million in income to Keppel REIT in 2016.
2. Marina Bay Financial Centre
   Keppel REIT has 33.3% interest in the Marina Bay Financial Centre, an integrated development comprising of 3 premium Grade A office towers and the subterranean Marina Bay Link Mall. In 2016, it was occupied by 162 tenants with major tenants such as DBS, Standard Chartered, Barclays, BHP Billiton and Nomura. In 2016, this property has contributed S$ 93.2 million in income to Keppel REIT.
3. One Raffles Quay
   Keppel REIT has 33.3% interest in One Raffles Quay, a development that consists of 2 office towers in the Marina Bay precinct. In 2016, it was occupied by 53 tenants with key tenants such as Deutsche Bank, UBS and Ernst & Young. In 2016, One Raffles Quay has contributed S$ 29.2 million in income to Keppel REIT.
4. Bugis Junction Towers
   Keppel REIT owns 100% interest in Bugis Junction Tower, an office tower located directly above the Bugis MRT interchange station. In 2016, it was occupied by 11 tenants with key tenants such as Keppel Land, International Enterprise (IE) Singapore, and InterContinental Hotels Group. In 2016, this property has contributed S$ 16.8 million in income to Keppel REIT.

Australia

The Australia portfolio made up the remaining 11% of Keppel REIT’s AUM of S$ 8.4 billion. These properties include:

1. 8 Chifley Square, Sydney
   Keppel REIT owns 50% interest in the 8 Chifley Square, a premium grade office tower in the prime business district in Sydney. Its main tenants include Corrs Chambers Westgarth, Quantium Group, QBE Insurance Group, PPB Advisory, and Natixis. In 2016, this building has contributed S$ 12.2 million in income to Keppel REIT.
   
   
2. 8 Exhibition Street, Melbourne
   Keppel REIT owns 50% interest in the 8 Exhibition Street, a prime 35-storey commercial building in the CBD of Melbourne. Its main tenants include Ernst & Young, UBS, Minister for Finance – State of Victoria, CBRE, and National Australia Bank. In 2016, the property has contributed S$ 11.2 million in income to Keppel REIT.
   
   
3. 275 George Street, Brisbane
   Keppel REIT owns 50% interest in the 275 George Street, a prime Grade A Building in Brisbane. Telstra Corporation and Queensland Gas Company are key tenants of this building. In 2016, this building has contributed S$ 15.0 million in income to Keppel REIT.
   
   
4. David Malcolm Justice Centre, Perth
   Keppel REIT has 50% interest in the David Malcolm Justice Centre which houses the Supreme Court’s civil functions, judicial chambers, departments of Treasury and the Attorney General. Its main tenant is the Government of Western Australia. This property has contributed S$ 12.0 million in income to Keppel REIT in 2016.

#3: The Financials

Over the last 5 years, Keppel REIT has maintained its distributable income at S$ 200 – 220 million a year. Distributions per unit (DPU) has dipped slightly from 7.9 cents in 2013 to 6.3 cents in 2016. This is due to increased number of units issued in 2013 and 2014 for the purpose of financing its purchase of the 50% interest in the 8 Exhibition Street and 33.3% interest in the Marina Bay Financial Centre (MBFC) Tower 3. The income contributed from these two properties was offset by the loss of income from the disposal of Prudential Tower and the 77 King Street Office Tower in 2014 and 2016 respectively.

 
Source: Annual Reports of Keppel REIT

Source: Annual Reports of Keppel REIT

#4: Major Acquisitions

On 31 July 2017, Keppel REIT has completed the acquisition of 50% interest in 311 Spencer Street in Melbourne for A$ 347.8 million. It will be developed into a Grade A Office Tower that will be leased to the Assistant Treasurer for the State of Victoria solely for a period of 30 years on a net lease with annually fixed escalations. The target completion for this development is set to be Q4 2019.

#5: Sponsor Strength

Keppel Land, one of Asia’s leading real estate companies, is the sponsor and the largest unitholder of Keppel REIT. As at 1 March 2017, Keppel Land owns 44.48% indirect shareholdings of Keppel REIT where its units are held by its 100%-owned Keppel REIT Investment Pte Ltd.

#6: Lease Profile

As at 30 September 2017, Keppel REIT has reported 99.6% in committed occupancy rate for its overall portfolio. It has started to negotiate for some leases which are either due for renewal and review in 2018. Based on its net lettable area (NLA), 73.7% of its leases would be expiring beginning in the year 2021 and beyond, thus, providing income visibility to its unitholders.

Source: Q3 2017 Financial Results Presentation of Keppel REIT

#7: Valuation

As I write, Keppel REIT is trading at S$ 1.33 a unit.

As at 30 September 2017, Keppel REIT has reported having S$ 1.41 in net asset value a unit. Thus, its current P/NAV works out to be 0.94.

Keppel REIT adopts a distribution policy to declare and pays out at least 90% of its distributable income on a quarterly basis. The trust has declared and paid 1.40 cents in DPU for Q3 2017. If Keppel REIT is able to maintain its DPU at 1.40 cents over the next 12 months, it would pay out 5.60 cents in DPU a year. Thus, its expected gross dividend yield is 4.2%.

#8: Debt Profile

As at 30 September 2017, Keppel REIT has S$ 3.40 billion in borrowings. Its gearing ratio is 44.5%. Its weighted average debt maturity stands at 3.0 years.

#9: Investor Relations

For further enquiries or to request for additional investment information on Keppel REIT’s Investors Relation matters, you may contact:

Grace Chia

Designation: Assistant General Manager

Department: Investor Relations & Communications

Telephone: +65 6803 1739

Email: grace.chia@kepcapital.com

#10: Major Shareholders

As mentioned, with 44.48% unitholdings, Keppel REIT Investments Pte Ltd is the substantial unitholder of Keppel REIT.

Temasek Holdings (Private) Ltd is the ultimate largest unitholder of Keppel REIT as it is the largest shareholder of Keppel Corporation Ltd which is the largest shareholder of Keppel Land who owns 100% shareholdings in Keppel REIT Investments Pte Ltd.

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