2 Things That Investors Should Know About Keppel REIT Now
Keppel REIT (SGX: K71U) is a real estate investment trust (REIT) with a focus on commercial properties. Its portfolio currently consists of nine office assets located in Singapore and Australia.
The REIT has ownership over properties such as Ocean Financial Centre, Bugis Junction Tower and partial stakes in other properties like Marina Bay Financial Centre and One Raffles Quay.
There are two things about the REIT that investors may want to know about right now: Its latest financial performance and valuation.
Here’s a table showing important items from Keppel REIT’s financial year ended 31 December 2017 (FY2017).
Source: Keppel REIT FY2017 Results
Overall, we see that most metrics came in stronger for the year, with the exception of income available for distribution and distribution per unit (DPU).
The lower income for distribution was mainly due to the absence of income from 77 King Street in Sydney, which was divested in January 2016, lower one‐off income received, lower rental support and the absence of other gains distribution.
Committed occupancy of the REIT’s Singapore portfolio was 99.6%, higher than Singapore’s core CBD (Central Business District) average of 93.8%. Meanwhile, committed occupancy of the Australia portfolio remained stable at 99.8% and was also above Australia’s national CBD average occupancy of 89.2%.
In sum, it was a stable year for Keppel REIT with strong occupancy rates.
There are two useful valuation metrics for assessing REITs. They are the price-to-book (PB) ratio, and the distribution yield.
As at 12 February 2018, Keppel REIT had a PB ratio of 0.8 and a distribution yield of 4.87%. In comparison, the average PB ratio of the 40 REITs in Singapore’s stock market was 0.99 while the average distribution yield stood at 6.32%.
On one hand, Keppel REIT is trading at a discount to market average based on its low PB ratio. Yet, its distribution yield is poorer than the market average.
Taking into account both the PB ratio and distribution yield, it seems to me that Keppel REIT is currently trading at a marginal premium to the market average.