Decline in distribution per unit for Keppel REIT

Keppel reit

Keppel REIT’s 4Q2017 results showed a growth in property income and net property income, but due to a rising number of units and decline in distribution to unitholders, distribution per unit fell from 1.48 SG cents to 1.43 SG cents.

Looking into the financial statements and comparing 4Q2016 against 4Q2017:

  • Property income rose from S$40m to S$44.4m. This is good. The increase is due primarily to an improvement in other income.
  • Property expenses fell from S$8.6m to S$8.1m. This is marginal but good.
  • Other income fell from S$41.9m to S$32.1m. This is not good. The decline is primarily due to lower rental support (In note 2: Keppel REIT mention that the rental support drawn down for Ocean Financial Centre and Marina Bay Financial Tower 3 for FY2017 are S$2.525m and S$10.3m compared to S$3.946m and S$12.8m for FY2016), negative impact of foreign exchange differences and negative impact of net change in fair value of derivatives.

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There was also a negative net tax and other adjustment primarily due to a negative change in “net change in fair value of investment properties”.

Property performance

In terms of individual property performance, all properties showed an increase in property income with the exception of 275 George Street.

For directly held properties, the property income performance between 4Q2016 and 4Q2017 as follows

  • Bugis Junction Towers – S$4.9m to S$5.1m
  • Ocean Financial Center – S$26.5m to S$30.2m
  • 275 George Street – S$4.7m to S$4.6m
  • 8 Exhibition Street – S$4.0m to S$4.4m

For non directly held properties, the performance as follows

  • One-third interest in One Raffles Quay – Interest income rose from S$0.47m to S$0.51m while dividend income fell from S$6.1m to S$6.0m
  • One-third interest in the entities that hold Marina Bay Financial Centre Towers 1, 2 and 3 and Marina Bay Link Mall – Rental support fell from S$3.2m to S$2.6m, interest income rose from S$4.1m to S$4.6m and dividend and distribution income rose from S$14.5m to S$16.0m
  • 50% interest in M8CT, the entity which holds 8 Chifley Square – distribution income rose from S$3.1m to S$3.4m
  • 50% interest in MOTT, the entity which holds David Malcolm Justice Centre – distribution income rose from S$3.1m to S$3.3m

Rental reversion

For leases signed the whole of FY17, there was a negative rental reversion of 4%.

This reverses the negative 9% reversion seen in FY16, but is a far cry from the 13% positive reversion seen in FY15 and 17% in FY14.

Keppel REIT has not been spared from the effects of the general slowdown in the office market over the last few years.

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Looking forward, CBRE expects the outlook for the market to be positive, driven by improved economic prospects and a lower quantum of new supply in the mid-term.

Singapore’s core CBD office occupancy rates in 4Q2017 improved from 92.5% to 93.8% compared to a quarter before.

Average grade A rents also increased to S$9.4 psf pm in 4Q2017 from S$9.1 the previous quarter.

Rental support

Not easily seen in the statements is the rental support that Keppel REIT has taken over the years.

In the following I extract out the amounts of rental support received by Keppel REIT for the various buildings.

For FY 2017

  • Ocean Financial Centre – S$2.52m
  • Marina Bay Financial Centre Tower 3 – S$10.3m

For FY 2016

  • Ocean Financial Centre – S$3.946m
  • Marina Bay Financial Centre Tower 3 – S$12.8m

For FY 2015

  • Ocean Financial Centre – S$5.577m
  • Marina Bay Financial Centre Tower 3 – S$14.8m

One good sign is that the amount of rental support has been falling, indicating that rental income from both properties is beginning to pick up, reducing the need for rental support.

For Ocean Financial Centre, total net property income for FY17 has risen to S$89.1m from S$84.9m one year ago.

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For Marina Bay Financial Centre Tower 1, 2 and 3 and Marina Bay Link Mall (Keppel REIT does not provide a breakdown by individual tower), dividend and distribution income has risen to S$70m in FY17 from S$59.3m one year ago.


Occupancy for Keppel REIT’s portfolio stands at 99.7% across all properties, with Singapore showing an average of 99.6% and Australia 99.8%.

This is an improvement from one year ago when overall REIT occupancy was 99.2%, Singapore was 99.1% and Australia was 99.4%.

Tenant mix

Keppel REIT still has a portfolio mainly filled with banking, insurance and financial services tenants at 43.5% based on portfolio committed NLA.

However, this has fallen compared to previous years when the proportion of such tenants were 45% (in 2016 and 2015), 47% (in 2014) and 49% (in 2013).

Some of the share has been distributed to real estate & property services where the proportion stands at 7.5% in 2017, compared to 5.3% in 2014.

The reduction in concentration to banking, insurance and financial services tenants is positive for Keppel REIT.

REIT leverage

One other positive development for Keppel REIT is the reduction in aggregate leverage over the past few years.

As of 31 Dec 2017, aggregate leverage stands at 38.7%, and this has shown a gradual decline over the last few years as shown below.

  • FY 2016 – 38.5%
  • FY 2015 – 39.3%
  • FY 2014 – 43.3%
  • FY 2013 – 42.1%

Despite the downtrend in leverage, the level is still higher than other commercial REITs such as Capitacommercial Trust’s 37.3%, Mapletree Commercial Trust’s 36.3%, Frasers Commercial Trust’s 34.8% and Suntec REIT’s 36.4%.

On this basis alone, Keppel may find it more difficult to make future acquisitions unless the acquisition is funded heavily by an equity issuance.


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