Keppel REIT's distributable income falls by 1.9%: Our Quick Take

Summary of Keppel REIT 3Q24 operational updates

Keppel REIT (KREIT)'s 9M24 distributable income fell 1.9% year-on-year to S$160.6m, due to a 33.3% jump in borrowing costs to S$65.0m.

9M24 net property income rose 10.8% year-on-year to S$148.5m. 

This is mainly led by contributions from 2 Blue Street (acquired in Apr 2023) and 255 George Street (acquired in May 2024), and higher occupancy at Ocean Financial Centre and KR Ginza II. 

Overall occupancy rate inched higher to 97.6%, from 97% at end-Jun.

The portfolio enjoyed 10.2% rental reversions, higher than 1H24’s 9.3%, mainly in Singapore. Average signing rent for Singapore offices was S$12.93 psf per month, above CBRE’s S$11.95 for 3Q24.

Aggregate leverage rose further to 41.9% (Jun 24: 41.3%). The regulated cap is 50%. It has S$902m debt due in 2025, and S$300m 3.15% perpetual securities due for first reset on 11 Sep 2025. 

All-in interest cost was 3.38%, higher than 1H24’s 3.31%. Interest coverage was 2.7x. About 68% of debts are on fixed rates.

Beansprout's take on Keppel REIT's 3Q24 operational update

About 5.4% and 15.3% of the leases will expire in FY24 and FY25, respectively, mainly in Singapore. We expect the spread between new and expiring rents to narrow, and rental reversions to ease in 4Q24 and FY25.

Debt worth about S$775m was entered into 4 to 5 years ago when rates were low. Refinance of debt and perpetual securities is likely to raise the all-in interest cost closer to 4%, from current 3.38%, in our view.

The Australian dollar has weakened weakened 2.7% against the Singapore dollar year-to-date. Australian assets account for 18.8% of total portfolio value. A depreciation in A$ will lower asset values and distribution, and worsen aggregate leverage. 

NAV per share at end Jun 24 was S$1.27. KREIT is trading at 0.7x price to book. Based on 1H24 DPU of 2.80 cents, the annualized distribution yield is 5.96%.

Related links:

• Keppel REIT share price and share price target

• Keppel REIT dividend forecast and dividend history

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