Real estate investment trusts (REITS) are a popular investment vehicle in Singapore as they cater to individuals’ longing for property ownership while offering a regular stream of cashflow through dividend payments. It is also an alternative route to direct property ownership, which is heavily subject to taxation.
As home to the second-largest REIT and property trust markets in Asia after Japan, there are currently 42 REITs and property trusts listed on the Singapore Exchange (SGX), with a combined market capitalisation of S$100 billion. This represents 13% of the overall listed stocks. Furthermore, 90% of these locally listed REITs and property trusts hold assets overseas, unlike other REIT markets, where the property holdings are more local-centric.
However, one local-listed REIT that you can invest in with a large concentration of Singapore properties is Keppel REIT (SGX Code: K71U), which has a market capitalisation of $3.4 billion (as of end 2022). Listed in April 2006, Keppel REIT has a portfolio of commercial assets (office buildings) in Asia Pacific’s key business districts. Though 78% of its S$9 billion portfolio comprises Singapore-based assets such as Ocean Financial Centre, Marina Bay Financial Centre, One Raffles Quay, and Keppel Bay Tower, it also has a presence in Australia, South Korea, and Japan.
Despite the challenging economic outlook, Keppel REIT has an impressive overall portfolio occupancy of 96.3% and a portfolio WALE of 5.8 years (as at 31 March 2023), indicating the strength and stability of its holdings. Here are 5 things about Keppel REIT’s business if you’re keen to invest in CBD Grade A office buildings.
What is Keppel REIT’s acquisition strategy?
Keppel REIT strives to maintain a portfolio of quality assets across different markets to enhance the total return to Unitholders. We continuously look for suitable opportunities and adopt a rigorous evaluation process to consider various factors. Key considerations include location and quality of the asset, potential for rental growth and capital appreciation, distribution per unit (DPU) accretion, as well as demand and supply dynamics.
Acquisitions should also complement and enhance our existing portfolio, while allowing Keppel REIT to maintain a robust balance sheet.
To what extent is Keppel REIT capitalising on new norms and trends that could be game-changers for it in the future?
Sustainable office solutions such as super low energy and carbon neutral buildings, as well as buildings operating using renewable energy are gaining importance. Currently, within Keppel REIT’s portfolio, we have three properties which are fully powered by renewable energy and two buildings which are carbon neutral. We aim to provide more such offerings to the tenants and are working towards utilising more renewable energy for some of our existing properties.
For some of our Australian properties, we sub-divided the larger spaces and fitted-out the smaller units to target a wider range of prospective tenants, as well as to cater to the demand for smaller spaces. Such smaller fitted out units have been gaining popularity amongst tenants as this will lower their upfront capital expenditure and enable them to move in within a shorter timeframe. This strategy has been well received and we intend to roll out this concept to the other properties in Australia and our property in Japan, KR Ginza II.
What is Keppel REIT doing to fulfil your sustainability commitments?
In early 2022, we announced a set of new ESG targets and had made good progress in 2022 as set out below:
Environment: We will continue to implement energy efficient technologies and increase the use of renewable energy. We will also work with our tenants by exploring innovative ways to reduce energy consumption and GHG emissions.
- In May 2023, we announced the appointment of a female independent director which increased our female board representation to c.29%.
- We encourage our employees to upgrade themselves through training for career advancement while contributing to Keppel REIT.
- We have been working closely with Keppel Capital in our community outreach programmes. For 2023, we will continue to support the community through various engagement activities.
Governance: We remain committed to maintaining transparent and timely communication with our stakeholders while ensuring compliance with regulations.
With many economists predicting a slowing economy and a possible recession in the near term, how is Keppel REIT preparing itself to ride out this storm?
Keppel REIT has an established track record of active portfolio and capital management to drive asset performance and maximise returns to Unitholders. Despite the challenges during the COVID-19 pandemic, we continued to deliver resilient performance with our quality portfolio.
In managing our assets, we will continue to be proactive by commencing discussions with tenants early for renewals and actively reach out to potential tenants to maintain high occupancy and stable income streams.
We will also continue to monitor and manage our costs while maintaining a strong balance sheet and financial flexibility.
Why should investors take a closer look at Keppel REIT?
Keppel REIT owns a resilient portfolio of prime commercial assets in Asia Pacific’s key business districts. Despite the challenging environment, Keppel REIT continued to achieve strong operating metrics and deliver DPU growth over the past 5 years. It is also trading at an attractive yield of 6.8% as at end April 2023 based on FY2022 DPU of 5.92 cents.
Over the years, through successful portfolio optimisation, Keppel REIT has accumulated substantial capital gains and has committed to distribute $100 million of such gains to Unitholders as appreciation of their support. This is also a testament to Keppel REIT’s commitment to deliver stable income and drive sustainable long-term total return to Unitholders.
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 30 May 2023 and have been republished with permission. You can read more on Keppel REIT on the SGX website.