Keppel REIT (SGX: K71U) has just reported a resilient financial performance during the H1 FY2023 ended 30 June 2023, as property income grew by 4.7% year-on-year (yoy) on the back of higher rentals and portfolio occupancy.
As one of Asia’s leading REITs with a portfolio of prime commercial assets in Asia Pacific’s key business districts, Keppel REIT’s performance offers a compelling investment narrative with a blend of strategic decision-making, solid financial results, and a forward-looking approach.
Here, I’ll break down the five key takeaways from the earnings report. Dive in to unpack the intricacies of Keppel REIT’s latest financial numbers.
1. Solid financial performance with a few hiccups
Keppel REIT experienced positive revenue growth with a 4.7% increase in H1 FY2023, to S$114.9 million.
Despite elevated property expenses, the REIT’s net property income (NPI) stood firm at S$89.9 million.
However, the distribution to unitholders saw a 1.4% decline from the previous year, primarily due to diminished contributions and rising interest expenses, settling at S$109 million.
2. Portfolio valuation and buyback strategy
Keppel REIT’s portfolio valuation was supported by its quality assets in Singapore.
However, its overseas counterparts faced a decline – mainly due to factors like elevated cap rates for Australian offices and the weak foreign exchange (forex) rates that affected its Japanese properties.
The overall portfolio saw a slight dip of 0.1% since the end of December 2022.
On another note, in a strategic move, Keppel REIT repurchased and nullified 19.65 million of its units, which represents close to 0.5% of its entire issued share capital.
3. Occupancy and rental highlights
Keppel REIT boasted a robust occupancy rate of 94.9% as of the end of H1 FY2023.
The portfolio occupancy rate would have increased to 97%, if we exclude the newly-completed Blue & Williams in Australia.
The H1 FY2023 saw positive rental reversions, with a commendable 8.1% rise, driven largely by increasing demand from the tech and banking sectors.
Looking forward, Keppel REIT is poised for potential growth, with a notable 20.4% of its leases set for renewal or review in 2023 and 2024.
4. Strong capital management with room for growth
Keppel REIT reported a commendable aggregate leverage ratio of 39.2%.
Regarding interest coverage and hedging, the average adjusted interest coverage ratio stood at a solid 3x, and a significant 76% of the REIT’s borrowings have been converted into fixed rates.
As for its future financial roadmap, Keppel REIT is exploring multiple avenues, which include actively scouting for value-accretive acquisitions and also weighing the benefits of share buy-backs and capital distributions.
5. Attractive valuation with a 6.4% dividend yield
At the current level, Keppel REIT is trading at a forward dividend yield of 6.4%.
This suggests that the majority of potential risks have already been incorporated into the current share price.
As for future prospects, Keppel REIT’s growth trajectory might be shaped by successful accretive acquisitions and a resurgence in office space demand – reminiscent of pre-Covid times.
Nonetheless, challenges could arise from lingering vacancies, especially if the uptake of office space lags and as the hybrid work culture becomes more prevalent.
Strong and diversified portfolio gives Keppel REIT a distinct advantage
In conclusion, Keppel REIT’s H1 FY23 announcement presents a mix of robust performance, strategic capital management, and positive market positioning, despite facing a few challenges.
Potential investors might view this as an attractive proposition, given the trust’s proactive approach to growth and risk management.
With a dividend yield of 6.4%, a strong track record in the commercial property space and its quality assets, long-term investors will find it difficult to ignore this REIT gem.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
