Keppel Reit still hurting from Sydney asset sale

Ocean Financial Centre (above) is among the assets held by Keppel Reit in Singapore. To ensure that its buildings remain occupied, the trust has also sought to renew leases earlier to counter any poaching attempts from operators of new buildings.
Ocean Financial Centre (above) is among the assets held by Keppel Reit in Singapore. To ensure that its buildings remain occupied, the trust has also sought to renew leases earlier to counter any poaching attempts from operators of new buildings.ST PHOTO: KUA CHEE SIONG

While occupancy in properties here is high, rents are pegged back by tough office market conditions

The absence of income from a Sydney property that Keppel Reit sold last January continued to weigh on its fourth-quarter earnings.

Net property income for the three months ended Dec 31 fell 9.6 per cent to $31.42 million, said trust manager Keppel Reit Management yesterday.

As a result, income available for distribution dipped 9.8 per cent year-on-year to $48.72 million in the fourth quarter.

Distribution per unit (DPU) was 1.48 cents - a sharp 11.9 per cent drop from 1.68 cents in the fourth quarter of 2015.

The trust manager attributed the decline in income mainly to the absence of contributions from the 77 Kings Street office tower in Sydney and lower property income from Bugis Junction Towers here. The decline was partially offset by higher contributions from Ocean Financial Centre in Raffles Place.

Keppel Reit had assets under management of about $8.4 billion as at Dec 31, comprising interests in eight office properties in Singapore and Australia.

  • AT A GLANCE (Q4)

  • PROPERTY INCOME: $40 million (-6.5%)

    NET PROPERTY INCOME: $31.42 million (-9.6%)

    INCOME AVAILABLE FOR DISTRIBUTION: $48.72 million (-9.8%)

    DISTRIBUTION PER UNIT: 1.48 cents (-11.9%)

The Singapore properties are Marina Bay Financial Centre, One Raffles Quay, Ocean Financial Centre and Bugis Junction Towers.

"2016 was a difficult year for the Singapore office market, given the oncoming supply of office space and aggressive leasing efforts from newly completed buildings," the trust manager noted.

To mitigate leasing risk, the trust had sought to renew and forward renew leases to retain tenants.

About 621,000 sq ft of space was renewed in the fourth quarter, which took total leases signed in the 2016 fiscal year to 136 - or about 2.2 million sq ft of space.

The challenging office market conditions, however, had pegged rents back. The manager noted that rent reversion for leases signed for all assets under the portfolio came in at minus 9 per cent last year.

"Average signing rent for the Singapore office leases concluded in 2016 was $9.60 psf," the trust manager said.

Occupancy remained high at 99.1 per cent for its assets here, and 99.4 per cent for those in Australia.

Quarterly earnings per unit of 1.16 cents were up from 1.06 cents a year ago. Net asset value per unit came in at $1.44 as at Dec 31, unchanged from the end of 2015.

Keppel Reit booked a net property income of $128.37 million for the full year, down 6.6 per cent.

The DPU for last year was 6.37 cents, lower than the 6.8 cents in the previous year.

The manager expects the challenging global economic environment "to have a continued dampening effect on the Singapore office leasing market, especially in 2017".

It noted that while the Reit's high committed occupancy will help weather the supply and demand imbalance in the office sector, its "rental income is not immune to the general decline in rents in the Singapore office market".

Keppel Reit units closed half a cent higher at $1.045 yesterday, before the earnings were announced.

A version of this article appeared in the print edition of The Straits Times on January 25, 2017, with the headline 'Keppel Reit still hurting from Sydney asset sale'. Print Edition | Subscribe