Keppel REIT 3Q2020 Financial Results have been released on 19th October 2020. Keppel REIT is a pure Grade A office play in Singapore, Australia and Korea.
I am curious on how COVID-19 has impacted the performance of office REITs. In my opinion, the impact to offices is very much dependent on the individual company policies such as working from home whereby businesses may release redundant office working space.
Now, let us take a look at how Keppel REIT has performed.
In 3Q2020, property income increased to S$44.8 million, a 5.7% increase as compared to 3Q2019. Net Property Income improved by 7.2% to S$35.6 million.
Distributable income from operations was $47.6 million for 3Q 2020, a 4.6% increase year-on-year due mainly to the commencement of income contribution from 311 Spencer Street in Melbourne, which achieved practical completion on 9 July 2020, and lower interest expenses.
Keppel REIT 3Q2020 Financial Results
| 3Q2020 (S$’mil) | 3Q2019 (S$’mil) | YoY(%) | |
| Gross Revenue | 44.8 | 42.4 | 5.7 |
| Net Property Income | 35.6 | 33.2 | 7.2 |
| Distributable Amount | 47.6 | 45.5 | 4.6 |
Keppel REIT 9M2020 Financial Results
If you looked at the 9 months financial results, Gross Revenue and Net Property Income (“NPI”) have declined by 1.6% and 0.9% respectively.
In my opinion, the numbers are not too bad in consideration of COVID-19 impact to the overall economy.
| 9M2020 (S$’mil) | 9M2019 (S$’mil) | YoY(%) | |
| Gross Revenue | 120.3 | 122.3 | (1.6) |
| Net Property Income | 94.6 | 95.5 | (0.9) |
| Distributable Amount | 132.4 | 134.1 | (1.3) |
Occupancy
As of 30th September 2020, committed occupancy stood at 98.3%. This is considerably high due to workers working remotely during the COVID-19 pandemic.
Only 0.9% of the leases are expiring in 2020 which is also a good sign.
Debt
Gearing ratio stood at 35.0%. In my opinion, this is still within the healthy range. Weighted Average Term to Maturity stood at 3.3 years.
80% of the borrowings are hedged on fixed rates to mitigate against the risk of currency fluctuation.
Current Dividend Yield
Based on the current share price of S$1.02 and FY19 full year dividend yield of 5.58 cents, this translate to a current dividend yield of 5.47%.
In 2Q2020, a distribution of 1.40 cents was paid, an increase of 0.7% as compared to 1.39 cents in 2Q2019. This is a sign DPU payout remain stable throughout the COVID-19 pandemic.
Summary
The average grade A rent for Singapore office market fell to S$10.70 psm in September.
The prime gross effective rent for Australia office market is also on the downtrend.
Korea grade A net effective rent seems to be on the uptrend.
In my opinion, the current dividend yield of Keppel REIT is stable at 5.47%. I will not say it is attractive because I have always highlighted that the dividend yield for office REIT should be at least 6% or higher. However with decreasing effective rent per square metre (psm), I can see why the dividend yield remain depressed below 6%.
Despite COVID-19, the occupancy has been relatively healthy. Most probably, businesses are not taking major action to downsize their office spaces yet. For Singapore, I will say employers are still not used to having their employees work remotely from home.
The impact of COVID-19 to Keppel REIT seems minimal as compared to retail REITs such as CapitaMall Trust.
As I have not done any comparison with other office REITs, I will keep Keppel REIT in my watchlist.