Rental reversions for Keppel Reit’s Singapore CBD offices hit 23.4% in Q4
The Reit’s FY2022 DPU is up 1.7% to S$0.0592
KEPPEL Reit secured positive rental reversions of 23.4 per cent for its office assets in Singapore’s central business district (CBD) in the fourth quarter of 2022, bringing its portfolio’s reversions for the full year to 10 per cent, its head of asset management Rodney Yeo said.
Speaking in an earnings call on Friday (Jan 27) after the real estate investment trust (Reit) posted a 1.7 per cent increase in distribution per unit (DPU) to S$0.0592 for FY2022 ended Dec 31, he said the Reit now expects reversions in the “mid to higher single digits” for leases expiring in 2023.
The assessment is based on the manager’s view that 2023 would be a “tale of two halves”, with the first half probably faring better than the second. “In the first half, we are still trying to make hay while the sun shines, given that supply coming online at the end of 2023 or early 2024 from IOI Central Boulevard Towers would probably create a pause in the recent market rent increase,” Yeo said.
He added that the current high rental reversions seen in Singapore were not driven by any particular tenant or asset, but a CBD-wide trend seen through the rapidly rising rents that reached 30 to 40 per cent in some cases over the course of the year.
But while the Reit is looking to absorb demand from offices relocating from Greater China, Yeo said such demand is “not a flood at the moment”, and is more of a trickle.
The Reit manager’s chief executive Koh Wee Lih said he is closely watching developments from the recent cost cuts in the tech sector, evidently seen through an intensifying number of layoff announcements from November.
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While noting that many of the tech tenants carrying out the layoffs in Singapore are in the business park sector and are not part of Keppel Reit’s portfolio, he said the shadow space created in the market would have an impact.
Keppel Reit’s S$9.2 billion portfolio is mainly located in Singapore, with Marina Bay Financial Centre and One Raffles Quay in its ranks, but it also has assets in Australia, South Korea and Japan.
In its latest financials, the Reit reported that FY2022’s rise in DPU was driven by an increase in net property income (NPI), which rose 2 per cent to S$158.9 million from S$155.8 million a year prior. The NPI performance was due to a full year of contribution from Keppel Bay Tower, a Singapore property which it acquired in May 2021, as well as higher NPI from Ocean Financial Centre in Singapore and Pinnacle Office Park in Sydney.
However, this was offset by the divestment of Brisbane’s 275 George Street in July 2021, and lower NPI from Melbourne’s Victoria Police Centre and Seoul’s T Tower due to weak exchange rates.
The higher NPI for FY2022, coupled with the anniversary distribution of S$100 million, resulted in a 4.1 per cent increase in distribution to unitholders to S$220.9 million.
Keppel Reit’s committed occupancy for its portfolio stands at 96.3 per cent as at Dec 31, 2022. The weighted average lease expiry for its portfolio is six years, and 10.5 years for its top 10 tenants.
About 1.8 million square feet of space has been committed for lease in FY2022, with Singapore making up the bulk of the leases. The weighted average signing rent for Singapore office leases has increased to S$11.54 per square foot (psf) per month for FY2022, compared to S$11.47 psf per month for the first nine months of 2022. Tenant retention rate stands at 78 per cent for FY2022.
The Reit’s manager said it would remain focused on delivering long-term sustainable returns. “The manager will continue to manage the impact of rising interest costs as well as drive operational excellence and ensure a disciplined approach in executing its portfolio optimisation strategy,” it said in a statement.
Units of Keppel Reit closed 3.7 per cent or S$0.035 higher at S$0.97 on Friday.
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