Keppel REIT has achieved higher distributable income year-on-year (y-o-y) and quarter-on-quarter (q-o-q) amounting to $54.4 million, despite the absence of income contribution from 77 King Street following its divestment in January 2016.
Consistent performance across all Keppel REIT’s properties in Singapore and Australia, in particular improved returns from its joint ventures, contributed to a higher level of income distributed to Unitholders. Better results of joint ventures were due to higher contributions from 8 Chifley Square in Sydney and the newly-completed David Malcolm Justice Centre office tower (previously known as the Old Treasury Building site) in Perth.
Excluding the contribution from 77 King Street and other non-recurring income and expenses, property income and net property income for the current portfolio for 1Q 2016 improved 2.5% and 1.6% y-o-y respectively. The Manager has declared a DPU of 1.68 cents for the quarter, equivalent to an annualised yield of 6.8%.
The Manager has continued its proactive marketing and rigorous easing efforts, with only a minimal 3% of the portfolio’s total net lettable area (NLA) due for renewal for the rest of 2016. This is a significant decrease from the approximate 14% expiring leases one quarter ago. Majority of the remaining 3% of expiring leases are likely to be renewed and tenants retained.
Including the recent renewals, the Manager has successfully concluded a total of 28 leases, equivalent to approximately 430,000 sf (attributable space of approximately 353,000 sf) of prime office space. Overall portfolio occupancy increased to 99.4% as at end-March 2016, up from 99.3% as at end-2015.
As at 1Q 2016, the Manager achieved a 99% tenant retention rate, with rental rates for all new, renewal, forward renewal and review leases recording an average positive rent reversion of 7%. The Manager continues to maintain long weighted average lease expiries of approximately eight years for Keppel REIT’s top 10 tenants and six years for the overall portfolio. Of the leases, approximately 85% is not due for renewal till 2018 and beyond, and approximately 80% of total leases is not due for renewal till 2019 and beyond, when limited new office supply is expected.
The Manager expects to renew most of the 11.5% of total portfolio NLA that is expiring in 2017 given that the majority of these tenants are in their first lease renewal cycle. The Manager is also proactively engaging tenants with leases expiring in 2018.
Continued proactive refinancing efforts saw Keppel REIT’s aggregate leverage decrease to 39.0% in 1Q 2016. The Manager has also completed 100% of refinancing requirements in 2016, bringing its weighted average term to maturity to a healthy 3.6 years, with no refinancing requirements until 2H 2017.
To provide certainty of interest expenses and safeguard against interest rate volatility, the Manager has increased its fixed-rate loans to over 75% as at 1Q 2016, up from 70% last quarter. Average cost of debt remained stable at 2.58%, with interest coverage ratio at a healthy 4.5 times.
In keeping with its policy of hedging more than 90% of income from its Australian assets, the Manager has hedged almost all of its forecasted distribution payout from Australia in 2016.
The Manager will continue to intensify efforts on tenant retention to maintain a healthy and long lease expiry profile. The Manager will also continue to achieve capital efficiency as it strives to maintain a well-staggered debt maturity profile.