Keppel REIT sold Australia Asset 77 King Street

Keppel REIT 77 King Street Sydney

Keppel REIT announces on 17th January 2016 that it has divested 100% of its interest in 77 King Street, Sydney, Australia  for A$160 million. The news came one day before Keppel REIT announces its financial results on 18th January 2016.

77 King Street is a freehold Grade A commercial building in Sydney’s Central Business District. 77 King Street comprises 18 levels of offices and two basement levels of retail space. Its tenants include Apple, Facebook and Capgemini.

According to the news released on Keppel REIT website, the sale was 40% of the original purchase price of A$116 million in year 2010. The buyer is ARE Noble Pty Ltd, a wholly-owned subsidiary of Invesco Asia Core Fund. The proceeds from the sale will be used to pay off existing debts and used for future investment opportunities.

With the divestment of 77 King Street, below is the updated portfolio of Keppel REIT.

Singapore

  • Bugis Junction Towers
  • Marina Bay Financial Centre
  • One Raffles Quay
  • Ocean Financial Centre

Australia

  • 8 Chifley Square, Sydney
  • 8 Exhibition Street, Melbourne
  • 275 George Street, Brisbane
  • Office Tower on the Old Treasury Building site, Perth

Some positive points to note from 3Q2015 results (Keppel REIT announces DPU of 1.70 cents for 3Q2015).

They are:

  • 70% of total leases are not due for renewal till 2018 and beyond.
  • Positive rent reversion averaging 16% for office leases signed, renewed and reviewed year‐to‐date
  • 25‐year long lease in the fourth quarter of 2015 (“4Q 2015”) for Old Treasury Building site in Perth. The tenant is the Government of Western Australia (WA).

In my personal opinion and observation, as compared to year 2014, the full year DPU for Keppel REIT is expected to be lower in 2015.

How Singapore REITs Defend against Fed Rate Hike

Rising Interest Rates

I was curious on how the Singapore REITs I held in my portfolio will hold the fort against the recent Fed rate hike. Thus, I dig into the financial result releases by each REIT recently for more details. I learnt a new term known as “Interest Rate Swap”. REITs issue bonds or notes as a form of interest rate swap.

Below is the definition taken from Investopedia. There is a video where you can watch for easier understanding.

An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.

Below are some statements extracted from the financial results which indicate fixed rate interest as a form of hedging or usage of interest rate swap to manage exposure to interest rate fluctuations.

Cambridge Industrial Trust

Cambridge Industrial Trust has 96.5% of interest rate exposure fixed for next 3.2 years. Borrowing costs significantly insulated against interest rate increases.

Frasers Commercial Trust

Frasers Commercial Trust has 81% of its debt hedged and 19% floating.

(Read more: Frasers Commercial Trust Achieves All Time High DPU of 9.71% for FY15)

Suntec REIT

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Suntec REIT DPU Rises for 3Q2015)

Soilbuild Business REIT

95% of debt hedged.

Far East Hospitality Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Far East Hospitality Trust DPU Fall for 3Q2015)

CapitaMall Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

Keppel REIT

Increased fixed-rate loans to over 70%, which will insulate against interest rate fluctuations, while allowing for financial and operational flexibility.

(Read more: Keppel REIT announces DPU of 1.70 cents for 3Q2015)

Mapletree Commercial Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Mapletree Commercial Trust DPU Rises 2.5% to 2.02 cents 2QFY15)

OUE Hospitality Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

ParkwayLife REIT

ParkwayLife REIT has hedged approximately 78% of its interest rate exposure.

(Read more: Parkway Life REIT DPU Increases for 3Q2015)

Conclusion

As a conclusion, we can see that most Singapore REITs are well defended against the Fed interest rate hike.