Creditable returns

Keppel REIT’s share of results of associates and joint ventures rose due to higher share of contribution from the David Malcolm Justice Centre (pictured) and Marina Bay Financial Centre

Keppel REIT delivered a creditable set of results for 2Q 2016 amidst market headwinds. Due mainly to the absence of contribution from 77 King Street which was divested in 1Q 2016, property income and net property income for 2Q 2016 were marginally lower by 1.5% and 1.4% quarter-on-quarter (q-o-q) respectively. Excluding contribution from 77 King Street, property income and net property income for the current portfolio remained stable in 2Q 2016.

Share of results of associates and joint ventures increased to $20.1 million and $8.3 million in 2Q 2016, up 7% and 22.6% q-o-q respectively, on higher share of contribution from the David Malcolm Justice Centre in Perth, Australia and Marina Bay Financial Centre.

The Manager has declared a distribution per unit (DPU) of 1.61 cents for the quarter. DPU for the first half of 2016 amounted to 3.29 cents, which translates to an annualised yield of 6.3%.

With its continued focus on proactive leasing and marketing, the Manager successfully renewed almost all the leases expiring in 2016 in the first half of this year, with only a minimal 0.6% of expiring leases due for renewal in the second half of this year. This is a significant improvement from 13.4% as at the beginning of 2016.

The Manager has also forward renewed approximately 365,000 sf (attributable space of 329,000 sf) of prime office space in 1H 2016, bringing the proportion of expiring leases in 2017 and 2018 down to 9.5% and 5.5% respectively as at 2Q 2016.

The majority of these expiring leases are in their first renewal cycle and are likely to be renewed.

In all, the Manager concluded a total of 69 leases or approximately 900,000 sf (attributable space of approximately 615,000 sf) of prime office space in 1H 2016. This raised Keppel REIT’s overall portfolio occupancy to 99.7% as at 2Q 2016.

Keppel REIT continues to command above-market rents for its Singapore office leases, achieving average committed rent of $10.10 psf for new, renewal and forward renewal leases in 2Q 2016. This was higher than the market’s average Grade A rent of $9.50 psf.

Despite the subdued office market, the Manager achieved positive rent reversion of approximately 2% for new, renewal and forward renewal leases in the first half of 2016.

The Manager continues to secure tenants for the longer term, maintaining a long Weighted Average Lease Expiry of approximately eight years for Keppel REIT’s top 10 tenants and six years for the overall portfolio, which will provide income stability for Unitholders amidst economic and market headwinds.

Keppel REIT’s lease expiry profile is well spread out, with approximately 90% of leases not due for renewal till 2018 and beyond, and approximately 85% of leases not due for renewal till 2019 and beyond, when limited to no new office supply in the CBD is expected.

The Manager will continue to focus on tenant retention and attraction to maintain a healthy and long lease expiry profile. The Manager will also continue its active capital management efforts to safeguard against interest rate and currency volatilities as well as enhance its financial flexibility to capitalise on opportunities that may arise during periods of uncertainties.

Keppel Land is a sponsor of Keppel REIT which is managed by Keppel REIT Management Limited, a wholly-owned subsidiary of Keppel Capital Holdings.