Keppel REIT Posts 2% DPU Drop as Borrowing Costs Rise, Interest Income Slumps

Singapore-listed Keppel REIT posted a 2 percent drop in distribution per unit for 2023 as borrowing costs jumped 16 percent and interest income plunged 70.9 percent.

Full-year net property income rose 3.7 percent to S$182.4 million ($136.2 million), boosted by revenue from Singapore and Japan properties, the commercial property trust’s manager said in unaudited results released Tuesday. Those contributions were partly offset by lower income from Australian and South Korean assets as the respective local currencies weakened.

Committed occupancy in Keppel REIT’s 12-asset portfolio rose to 97.1 percent at the end of December from 95.9 percent three months earlier, according to the manager, which is owned by Temasek-backed Keppel Corporation. The four-property Singapore portfolio, which includes one-third interests in Marina Bay Financial Centre and One Raffles Quay, enjoyed 99 percent occupancy.

“In Tokyo, KR Ginza II has also achieved 100 percent committed occupancy,” the manager said, with the office building formerly known as Ginza 2-chome having signed two new tenants from the technology, media and telecom sector.

ORQ, Pinnacle Asset Enhancements

Keppel REIT achieved positive rental reversion of 9.9 percent last year, with a weighted average lease expiry of 5.5 years across the portfolio and 9.7 percent among the top 10 tenants.

As part of the trust’s asset enhancement initiatives, One Raffles Quay will undergo improvements beginning in the first quarter and concluding by the end of 2024. Renovation work will take place at the garden plaza and the North and South Tower lobbies at ORQ, including new seating areas to promote collaboration and networking among tenants, the manager said.

In Australia, refurbishment of lobby and outdoor terrace areas at Pinnacle Office Park in Sydney’s Macquarie Park was completed this month. The ground floor lobby, cafe area and lift lobby were refreshed, a convertible clubhouse lounge and meeting rooms were added, the outdoor terrace was revamped to modernise seating areas, and a new walking track provides an opportunity to socialise and stay active.

The portfolio’s valuation rose 0.8 percent from 30 June 2023 to year-end to reach S$9.2 billion, with Singapore properties accounting for 79.1 percent of portfolio value, followed by Australia (16.5 percent), South Korea (3.4 percent) and Japan (1 percent).

Office Uncertainty

Asia Pacific office investment volume fell 13 percent year-on-year to $13.7 billion in the fourth quarter of 2023 as uncertainty about interest rate movements, the extent of repricing and occupancy shrouded the sector outlook, according to JLL’s latest Capital Tracker report.

During the period, corporates and end-users were involved in 38 percent of office investment volume, the highest among purchaser types, the consultancy said. The “vast majority” of end-user acquisitions took place in Greater China and South Korea.

A marked drop in yields during the final two months of 2023 had a ripple effect across commercial real estate assets, effectively resetting their valuations to levels seen in the second quarter of last year, according to the report.

“Between July and October 2023, the cap rates of Asia Pacific large-cap REITs had widened by 40 basis points,” JLL said. “Since then, the valuations of REITs have swiftly normalised, with their cap rates contracting by 25 basis points.”