Keppel Reit H1 DPU falls on higher property expenses, borrowing costs

KEPPEL Reit’s distribution per unit (DPU) fell by 2.4 per cent to S$0.029 for the first half of the 2023 financial year ended Jun 30, down from S$0.0297 the year before, its manager said on Tuesday (Jul 25). 

Distributable income from operations fell 10.5 per cent to S$99 million and was lower due mainly to higher property expenses and borrowing. 

Property income rose 4.7 per cent to S$114.9 million due to higher rentals and portfolio occupancy, the manager said.

Koh Wee Lih, chief executive of the manager, said during an earnings call that the Reit continued to see “healthy” operating performance, with high portfolio occupancy of 94.9 per cent.

He added that the Reit has seen stable leasing momentum, with over 850,000 square feet of space committed in the first half. The Reit has recorded positive rental reversion of 9.3 per cent in the first quarter and 7.7 per cent in the second quarter.

The manager is aiming to keep up the momentum in the second half. Koh said: “Single-digit rental reversion is what we are trying to aim for, but hopefully, we can outperform that.”

Committed occupancies for Ocean Financial Centre and One Raffles Quay were at 100 per cent; while Marina Bay Financial Centre and Keppel Bay Tower were above 98 per cent. This comes as leasing demand for prime office space remains steady, with average core Central Business District occupancy at 94.8 per cent in end June.

New and expansion leases committed to were distributed across various industry sectors, including technology, media and telecommunications, banking, insurance and financial services, and the government sector.

As at Jun 30, Keppel Reit had a total portfolio value of approximately S$9.2 billion, down 0.1 per cent from December 2022.  

Its Singapore portfolio valuation rose 0.5 per cent to S$7.2 billion, due to higher valuation for Marina Bay Financial Centre. Meanwhile, valuation of overseas assets in Australia fell 3.5 per cent in Singapore dollar terms to S$1.5 billion.

“We do believe in the robustness of our property. That’s why we do a mid-year (valuation) just to demonstrate where the market values are,” Koh said, adding that there will be another valuation done at the full year.

Keppel Reit’s profit before tax tumbled 60.4 per cent to S$82.3 million from S$208 million in H2 2022, mainly due to a net fair-value loss on investment properties, compared to a gain a year earlier.

Besides the distributable income from operations, Keppel Reit will also pay S$10 million from its anniversary distribution. The DPU of S$0.029 will be paid on Sep 8. Based on each unit’s closing price of S$0.90 on Jun 30, Keppel Reit’s annualised distribution yield would come up to 6.4 per cent.

As at Jun 30, Keppel Reit’s aggregate leverage stood at 39.2 per cent, with 76 per cent of its borrowings on fixed rates. The Reit has no major refinancing for the rest of this year. 

Keppel Reit has also been carrying out unit buy-backs, with 19.7 million units bought back and cancelled in the first half. Koh declined to comment on how much more buybacks the Reit would be carrying out.

“What you can gather from our action is we remain committed to our unit price as well as DPU, that’s why we are prepared to intervene when necessary,” he said.

Chief financial officer Kang Leng Hui added that the Reit also takes its aggregate leverage into consideration, as buybacks would use the Reit’s debt headroom.

“Now we are still at below 40 per cent. We have very good debt headroom,” she said.

Looking ahead, the manager said delivering sustainable long-term total return to unitholders continues to be its key focus. It will look to improve the quality of its assets through strategic acquisitions and divestments, proactively manage its portfolio, and exercise prudence in capital management. 

Koh noted that the Reit has been consistent with its portfolio optimisation strategy, which includes capital recycling.

“We’re not looking to raise fresh equity at the current discount rate, so potentially if we were to go into new acquisitions, one way we could do that is through capital recycling. But right now, nothing is being firmed up on which asset to recycle,” he said.

Units of Keppel Reit rose 1.6 per cent to close at S$0.925 on Tuesday, before the earnings announcement.