Keppel Reit Q1 DPU falls 13.7% y-o-y on Prudential Tower sale, lower rental support

Singapore

THE sale of Prudential Tower late last year and lower rental support in the first quarter led Keppel Reit to post a distribution per unit (DPU) of 1.70 Singapore cents for the three months ended March 31, 2015. This was a 13.7 per cent drop from the 1.97 cents it paid a year ago.

The office Reit's net property income fell 12.4 per cent to S$34.6 million, while total property income fell 9.4 per cent to S$42.4 million.

On a quarter-on-quarter basis, DPU grew 13 per cent to 1.70 cents due to a full-quarter contribution from MBFC Tower 3 and stronger performance from Bugis Junction Towers.

The Reit completed the divestment of Prudential Tower in September 2014. It had said at the time that much of the divestment proceeds will be used to repay existing debt, with the remainder for general corporate and working capital and/or for acquisition opportunities. That September, it also announced the purchase of a one-third stake in Marina Bay Financial Centre (MBFC) Tower 3 from its sponsor Keppel Land for some S$1.2 billion.

In its latest quarter, Keppel Reit saw lower rental support, including the expiry of rental support from its 87.5 per cent stake in Ocean Financial Centre (OFC) and an absence of rental support for MBFC Phase One. (Phase One consists of office towers 1 and 2, Marina Bay Residences and Phase 1 of Marina Bay Link Mall.)

Keppel Reit's purchase of OFC in late 2011 came with a five-year rental support of up to S$170 million which ended in January 2015, meaning that February and March reflected the actual performance of the property. Rental support of S$29 million for MBFC Phase One also expired in Q1 2014.

Rental support more than halved to S$6.2 million, from S$13 million a year ago. This, compounded with lower interest income, higher borrowing costs, higher management fees and trust expenses, all ate into DPU. An enlarged base of units, due to an issuance of new units to fund MBFC Tower 3, pulled its DPU lower.

Keppel Reit said it has successfully reviewed two-thirds of the leases due in 2015 at higher rents. It achieved positive rental rate reversion of 19 per cent for all office leases signed, renewed and reviewed in Q1. It also maintained a high portfolio occupancy of 99.3 per cent, with nine of 11 completed office towers in Singapore and Australia fully committed.

A DTZ report released on Monday showed office rents in the central business district (CBD) inch up 1.3 per cent quarter on quarter in Q1 due to a shortage of new office space. Much of this increase was in Marina Bay where rents rose by 3.8 per cent to S$13.75 per sq ft (psf), while rents in Raffles Place held firm at S$10.80 psf.

"The potential net supply for the whole of 2015 is estimated to be 530,000 sq ft, less than a third of that in 2014. The shortage is particularly pronounced within the CBD where the pipeline for the year is only about 131,000 sq ft, from the addition and alteration works of OUE Downtown and the Crown@Robinson," it said.

Units of the Reit ended half a cent lower at S$1.22 on Monday.