Keppel REIT DBS Vickers Pulse of Asia Conference

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Keppel REIT presented at the DBS Vickers Pulse of Asia conference on 8 Jan 2020.

For those unfamiliar with the REIT, here are a few short primers.

The REIT has approx S$8b of Grade A office assets in Singapore and Australia.

Singapore consists of 81% of the total assets, while Australia has 15.2%.

Korea forms a small part of the portfolio at 3.8%.

For the first 9 months of 2019, the REIT’s distributable income was $142.1 million.

DPU was down 0.5% compared to the same period last year at 4.18 cents

Occupancy of the portfolio is high at 98.9% and weighted average lease expiry (WALE) is 5.1 years.

Recent developments in the REIT include divestment of Bugis Junction Towers to Angelo Gordon for $547.5million or $2,200 psf.

This price is $388m above the REIT’s purchase price of $159.5 in 2006.

Cushman & Wakefield brokered the transaction.

Keppel REIT acquired a 99.38% interest in T Tower, a freehold Grade A office building in Seoul CBD.

The transaction is expected to be DPU accretive with an initial NPI yield of 4.7%

The transaction was completed at $301.4m.

311 Spencer street in Melbourne also topped out and the building structure was completed.

516k sqft of total leases were committed in 9M2019, with 91% of them in Singapore and 9% in Australia.

The average signing rents were $12.35 psf pm, above the prevailing market average of $11.45 psf pm.

Rents of expiring leases in 2020, 20201 and 2022 are $9.59 psf pm, $9.53 psf pm and $10 psf pm respectively.

Compared against current market rents, the leases currently have lower rental rates. When renewed, there could be a higher chance the signed rents are higher.

South Korea’s assets have the highest occupancy of 100%, followed by Australia at 99.9% and Singapore at 98.5%.

All of Australia’s properties have 100% occupancy with the exception of 275 George Street, Brisbane at 99.6%.

The entire portfolio has an occupancy rate of 98.9%

Keppel REIT has a gearing ratio of 38.9%, which is considered medium/high among Singapore REITs.

91% of the REIT’s borrowings are on fixed rates, which helps to mitigate sensitivity to changes in interest rate in the market.

In terms of income contribution to the portfolio in 9M2019, Marina Bay Financial Centre contributed the most at $64m (34.6% of total income), followed by Ocean Financial Centre at $49m (26.7% of total income).

Majority of the REIT’s income is contributed by Singapore ($141m), compared to Australia ($36m)

Keppel REIT operates in, Singapore, where Grade A office rents has increased to $11.45 psf pm, from $11.3 the previous quarter.

Rents have been rising since a trough of $9.1 in Dec 2016.

Occupancy for Grade A office assets in Singapore are at 96%, where they have hovered since Dec 2016.

A supply peak of 1.8m sf (vs average historical supply of 1.0m sf) is likely to occur in 2022 with Central Boulevard Towers and Guoco Midtown reaching completion.

Rents in Sydney and Melbourne have been increasing, but Perth and Brisbane’s performance has been lackluster.

Sydney rents are at 1041 AUD psm p.a., while Melbourne’s is at 544 AUD psm p.a. This is on a prime gross effective basis. Occupancy is at 95.9% and 97.5% respectively.

In Brisbane and Perth, rents are at 403 AUD psm p.a. and 447 AUD psm p.a. respectively, while occupancy is 92.3% and 85.1% respectively.

In the Seoul office market, rents have been trending down since 4Q14 to 89,514 KRW per py p.m., together with low occupancy rates at 84.5%.

Rents and occupancy may improve due to a lack of new supply after 2020 (33k py of new supply), with nothing in the pipeline from 2021-2023 expected.

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