Keppel REIT Supported by Resilient Office Market

Phillip Bonds  |   26 Oct 2021  |    111 views

Keppel REIT 3Q21 key business and operational updates were released on 26 October 2021. Here are the highlights.

  • Rents supported by resilient Singapore office market, with booming industries driving leasing demand.
  • Costs kept low with all-in interest rates for 9M21 down from 2.39% to 1.99%.
  • The Keppel REIT 3.15% perpetual offers the cheapest cash price of 98.65 among Singapore office REIT SGD bonds.

Company background

Keppel REIT owns a S$8.6bn grade A commercial portfolio with strong committed occupancy of 97.1% and an established and diversified base of 377 tenants, with the top 10 contributing 37% of gross rent. Portfolio breakdown by value is 80.0% Singapore, 16.4% Australia, and 3.6% South Korea. Key properties include Ocean Financial Centre (79.9% interest), Marina Bay Financial Centre (33.3% interest), One Raffles Quay (33.3% interest), and Keppel Bay Tower (100% interest).

Keppel REIT Highlights

Singapore office market remains resilient. Rents increased from S$10.50 psf pm to S$10.65 in 3Q21, and average occupancy in Singapore’s core CBD remained stable at 92.1%. Average net supply in the next 4 years is similar to the past 6 years average, averaging 0.975mn sf and 0.97mn sf respectively. This has supported Keppel REIT’s average signing rent for its Singapore office leases, coming in at S$10.49 psf pm, above the average expiring rents in 2022 of S$10.38.

Distribution income from operations in 9M21 was up a strong 20.8% YoY. This was mainly from contributions from Victoria Police Centre, Pinnacle Office Park, and Keppel Bay Tower. Rental collection was high at 99%.

Booming industries driving demand. Banking, insurance and financial services made up 34.5% of new leases signed in 9M21 based on area. Technology, media and telecommunications made up 22.0%, and manufacturing and distribution at 18.4%. Keppel REIT enjoys a long portfolio weighted average lease expiry (WALE) of 6.1 years, with its top 10 tenants lease expiries averaging longer at 10.8 years.

Costs kept low. All-in interest rate for 9M21 was 1.99%, down YoY from 2.39% as Keppel REIT refinanced its loans at lower rates. The REIT’s aggregate leverage of 37.6% is low compared to MAS limit of 50%, and the weighted average term to maturity was lengthened to 3.3 years through a recent issuance of a 7-year S$150mn medium term note at 2.07% p.a. in September 2021.

Bond valuations

the Keppel REIT 3.15% perpetual offers the cheapest cash price among all the Singapore office REIT SGD bonds; priced at 98.65 as of 26 October 2021. It comes with a yield to call of 3.53% and call date on 11 September 2025. We believe the bond offers good fixed income exposure to Singapore’s prime CBD office market.



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