Keppel REIT propped up by hefty divestment gains as earnings growth slows

KREIT is protected from dividend shortfalls.

Keppel REIT’s investors are safe from the threat of shrinking dividends even though the trust was pounded by weak earnings growth last year, according to a report by Jefferies Singapore. 

Jefferies noted that KREIT is sitting on about $60m of residual divestment gains from earlier transactions. This war chest can be used to support dividends in the event of earnings shortfalls, Jefferies said.

As a matter of fact, KREIT’s DPU grew in the fourth quarter despite an earnings contraction thanks to the distribution of divestment gains.

“The REIT distributed S$5M of such gains for 4Q and about S$11M for full year, which translates into about 9% and 5% of distributable income for 4Q and full-year, respectively,” Jefferies said. 

Jefferies added that in the fourth quarter, KREIT managed to increase portfolio occupancy by sacrificing high rental reversions. Rental reversion fell to single digits in the fourth quarter, a far cry from 19% reversion in 1Q, 18% positive reversion in 1H and 16% for the third quarter.

“Despite challenging conditions, KREIT was able to maintain sequentially flat dividends. Payouts of prior divestment gains, sequential pick-up in occupancy and strong focus in retention and signing new tenants helped. Portfolio is under-rented, so ongoing trend of negative reversion in spot market should not impact payouts much, but occupancy risk remains,” said Jefferies.

KREIT reported Q4 distribution per unit (DPU) of 1.68 cents, up 11% year-on-year. For the full year, however, DPU was down 5.9%. Core income from property was up 6.7%YoY for the last quarter but was down 8.4% for the full year.