Keppel REIT DPU declines by 3.4% - Our Quick Take

Summary of Keppel REIT's 1H24 results

Keppel REIT reported its results and dividends for the first half of 2024.

• Keppel REIT declared distribution per unit (DPU) of 2.80 cents in 1H24, 3.4% lower than 1H23, due to an increase in borrowing costs by 29.8% to S$41.3m. 
• This translates to an annualized yield of 6.4%.

Net property income (NPI) rose 7.7% year-on-year to S$96.8m. Including the assets held at associates and joint venture level, net property income attributable to unit holders was 5.7% higher year-on-year, mainly due to the addition of 255 George Street and 2 Blue Street in Australia.

The Singapore office assets lifted occupancy by 0.1% point to 98.9%. Average signing rent in 1H24 was S$12.63 psf per month, above CBRE’s estimate of S$11.95, and cap rates were stable. 

Despite the looming upcoming supply in CBD, the pressure on Keppel REIT's occupancy and rents look minimal, given that its expiring rents of S$10.77 to S$11.99 for 2024 to 2026 are well below current rent.

The assets in Japan and Korea also maintained their cap rates, but portfolio value fell 5.6% to S$381.2m due to weaker Yen and Won. 

Australian asset values were impacted by expansion in cap rates. According to JLL, occupancy rates and rents further weakened in Sydney and Melbourne CBD. Keppel REIT's NPI and valuation grew 12.3% and 18.8%, respectively, mainly due to the new acquisitions.

Gearing increased to 41.3% (Dec-23: 38.9%) and interest coverage ratio fell to 2.8x (FY23: 3.0x). About 65% of debt is at fixed rates and the average interest rate is 3.31% (FY23: 2.89%). 

It has S$300m perpetual securities at a fixed rate of 3.15% per annum, with the first rate reset on 11 Sep 2025. Management mentioned that its focus is to pare down debt and asset sale is one option.

Beansprout's take on Keppel REIT's 1H24 results

The results are likely to be viewed as neutral by investors.

One key consideration is how the management would lower gearing level. If this is through asset sale, it could lead to lower distributions going forward. An issuance of perpetual securities would reduce gearing, but pricing could be well above Keppel REIT's current interest rate of 3.31%.

Its overall interest rate could be affected by the interest rate outlook in Australia. About 18% of its loans are denominated in A$. The sticky inflation could compel RBA to hike the cash rate, currently at 4.35%.

Keppel REIT currently offers a dividend yield of 6.4%. The REIT is trading at 30% discount to book value of S$1.27 per share.

Dive deeper into the Keppel REIT with our checklist and find out if it may be worthwhile adding the REIT to your watchlist. 

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To learn more about our outlook on Singapore REITs, read our detailed report on "Singapore REITs - Distributions may remain under pressure"

Related links:

• Keppel REIT share price and share price target
• Keppel REIT dividend forecast and dividend history

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