Keppel is a global asset manager and operator with strong expertise in sustainability-related solutions spanning the areas of infrastructure, real estate and connectivity.
Keppel creates value for investors and stakeholders through its quality investment platforms and diverse asset portfolios, including private funds and listed real estate and business trusts. As of 30 June 2023, Keppel had a total portfolio with more than $65 billion of assets under management.
Here are the REITs and Business Trusts sponsored by Keppel (all of which are listed on the Singapore Exchange):
i. Keppel REIT (SGX:K71U)
ii. Keppel DC REIT (SGX:AJBU)
iii. Keppel Pacific Oak US REIT (SGX:CMOU)
iv. Keppel Infrastructure Trust (SGX:A7RU)
In this post, I will be sharing with you more about each of the four REITs and Business Trust – where you will learn about the types of assets each entity invests in, key highlights about their developments, as well as their 1H 2023 business updates.
1. Keppel REIT (SGX:K71U)
Listed by way of an introduction on 28 April 2006, Keppel REIT is one of Asia’s leading real estate investment trusts with a portfolio of prime commercial assets in Asia Pacific’s key business districts.
As at 30 June 2023, Keppel REIT has a total of 12 prime quality office assets in the following countries (with the number of assets in brackets) – Singapore (4), Australia (6), South Korea (1), and Japan (1) with a total portfolio value of over S$9 billion. Keppel REIT is managed by Keppel REIT Management Limited.
- Keppel REIT’s portfolio has grown from just S$600 million during its listing in 2006 to more than S$9 billion today. Over the years, it has successfully executed its portfolio optimisation strategy by unlocking value (where sale prices of divested assets ranged from 17% to more than 200% above the purchase prices) and recycled capital to acquire assets that provide better returns.
- Since listing, Keppel REIT has also enhanced its portfolio by diversifying into other countries such as Australia, South Korea and Japan, to strengthen its income stability and provide long-term growth opportunities. Its latest acquisition was KR Ginza II (formerly known as Ginza 2-chome) in October 2022.
- Keppel REIT has one of the greenest portfolios amongst Singapore REITs. All of Keppel REIT’s operational properties are green certified. Particularly, all its Singapore assets are certified with the Green Mark Platinum Award by the Building and Construction Authority. In Australia, most of its assets have also achieved 5 Stars and above in the National Australian Built Environment Rating System (NABERS) Energy rating.
- In celebration of Keppel REIT’s 20th anniversary in 2026, S$100 million of Anniversary Distribution will be distributed over a 5-year period (S$20 million a year, with such distributions to be made semi-annually. First tranche of the Anniversary Distribution was made together with 2H 2022 distribution and another $10 million will be distributed together with 1H 2023 distribution which unitholders can expect to receive on 8 September 2023) as an appreciation to Unitholders for their unwavering support.
1H 2023 Results Updates:
- Portfolio occupancy rate remains strong at 94.9% or 97.0% if excluding Blue & William which achieved its practical completion recently in April 2023. Enjoys a long portfolio WALE of 5.7 years (Singapore portfolio: 2.7 years, Australia portfolio: 12.1 years, South Korea portfolio: 3.9 years, and Japan portfolio: 2.7 years).
- Healthy aggregate leverage at 39.2%, with 76.0% of borrowings on fixed rates. Also, there are no major refinancing requirements in 2023, with the majority of debt due in 2023 and 2024 maturing in the fourth quarter of 2023 and second quarter of 2024 respectively.
- For every 50 bps hike in interest rates, its impact to the DPU per annum will be ~0.12 cents, or ~2.0%, based on FY2022 DPU of 5.92 cents.
- Keppel REIT has also bought back and cancelled 19.65 million units in 1H 2023.
2. Keppel DC REIT (SGX:AJBU)
Listed on the Singapore Exchange in December 2014, Keppel DC REIT is the first pure-play data centre REIT in Asia, with assets under management (AUM) of S$3.7 billion.
As at 30 June 2023, Keppel DC REIT’s portfolio comprises 23 data centres across 9 countries (with the number of assets in brackets): Singapore (6), Australia (2), China (3), Malaysia (1), Germany (2), Ireland (2), Italy (1), the Netherlands (3) and the United Kingdom (3). Keppel DC REIT is managed by Keppel DC REIT Management Pte. Ltd..
- Keppel DC REIT’s portfolio has grown from just S$1.0 billion during its listing in December 2014 to S$3.7 billion today. Its diversified global portfolio with a strong Asia Pacific presence includes 23 data centres across 9 countries.
- Keppel DC REIT has a high-quality client base with the majority of rental income derived from clients with investment grade or equivalent credit profiles.
- Keppel DC REIT is well positioned to leverage secular long-term trends including the adoption of cloud computing (where the worldwide cloud market grew by US$47 billion in 2022), digital transformation initiatives, as well as artificial intelligence (AI) and machine learning (such as generative AI including ChatGPT).
- Keppel has more than $2 billion of data centre assets under development and management in the Netherlands, Singapore, Indonesia, China and Australia.
- As a responsible corporate citizen, Keppel DC REIT is committed to doing good while doing well. Its Board Environmental, Social and Governance (ESG) Committee provides oversight of Keppel DC REIT’s ESG strategy, polices and initiatives, and monitors its progress in achieving ESG targets. It is also a signatory of the Climate Neutral Data Centre Pact.
1H 2023 Business Updates:
- Distributable income and DPU for 1H 2023 was $91.3 million and 5.051 cents respectively.
- Maintained high portfolio occupancy of 98.5%, with a long portfolio WALE of 8.0 years by lettable area and a well-spread lease expiry profile.
- Aggregate leverage remains healthy at 36.3%, with 73% of its debt fixed. A 100 bps increase would have a ~2.2%impact to 2Q 2023’s DPU on a pro forma basis.
- By April 2023, Keppel DC REIT has completed the refinancing of all the loans due in 2023. Its debt is diversified across five currencies, with the bulk of debt expiring from 2026 and beyond.
3. Keppel Pacific Oak US REIT (SGX:CMOU)
As the name implies, Keppel Pacific Oak US REIT (KORE) invests in properties in the United States (US). It was listed in November 2017, with the aim of being the first choice US office S-REIT with a focus on the fast-growing technology, advertising, media and information (collectively known as TAMI), medical and healthcare sectors across key growth markets in US.
As at 30 June 2023, KORE’s portfolio comprises 13 properties in the following US states – Austin, Dallas, Denver, Houston, Nashville, Sacramento, Seattle – Bellevue/Redmond, and Orlando, with a combined asset value of US$1.42 billion. Keppel Pacific Oak US REIT is managed by Keppel Pacific Oak US REIT Management.
- Key distinguishing factor that sets KORE apart from its peers is that its properties are located in key growth markets – including Super Sun Belt, 18-Hour Cities, and Supernovas, which continue to be the preferred relocation destinations by companies as part of The Great American Move. These key growth markets are characterised by positive economic and office fundamentals that generally outpace the US national average and the average of gateway cities.
- With about 68% of KORE’s portfolio (by net property income) in the tech hubs of Seattle – Bellevue/Redmond, Austin, and Denver, these markets continue to drive the REIT’s performance. Most of KORE’s assets in these markets are located close to prestigious universities and educated talent pools.
- High-quality tenant base in the growing and defensive TAMI, medical, and healthcare sectors (where nine out of KORE’s top 10 tenants are from), along with an extensive tenant base of 400 distinct tenants across diversified sectors.
- Regular asset enhancement initiatives have been carried out to improve the quality, marketability and sustainability of the properties, including the renovation of lobbies and restrooms, implementation of LED lighting in common areas, and installation of electric vehicle charging.
1H 2023 Business Updates:
- Committed portfolio occupancy remains resilient at 90.8%, with a portfolio WALE at 3.5 years (by net lettable area). Leases also have a built-in average rental escalation of ~2.5%.
- Aggregate leverage is at 38.4%, with no long-term refinancing requirements until Q4 2024.
- For every 50 bps increase in SOFR, the impact to its DPU per annum is ~0.066 US cents.
4. Keppel Infrastructure Trust (SGX:A7RU)
Keppel Infrastructure Trust (KIT) is Singapore’s largest listed diversified business trust, with AUM of S$7.3 billion. The Trustee-Manager of KIT is Keppel Infrastructure Fund Management Pte. Ltd..
KIT’s portfolio comprises businesses and assets in the three segments below:
i. Energy Transition segment that supports the transition to a low-carbon economy: City Energy, Keppel Merlimau Cogen Plant, Aramco Gas Pipelines Company, European Onshore Wind Platform, and the German Offshore Wind Farm;
ii. Environmental Services segment that provides essential services that protect human health and safeguard the environment: Senoko Waste-to-Energy Plant, Keppel Seghers Tuas Waste-to-Energy Plant, Keppel Seghers Ulu Pandan NEWater Plant, SingSpring Desalination Plant, as well as Eco Management Korea, and;
iii. Distribution & Storage segment that supports the circular economy, driving economic growth: Ixom, and Philippine Coastal Storage & Pipeline Corporation.
- In 2022, KIT entered the renewable energy sector, and enlarged its footprint to new geographies globally across Asia Pacific, Europe and the Middle East. The Trust deepened its foothold in the infrastructure sector with the completion of five acquisitions, i.e. investments in Aramco Gas Pipelines Company in the Kingdom of Saudi Arabia, a European Onshore Wind Platform (comprising three wind farms in Norway and Sweden), an offshore Wind Farm in Germany, as well as the acquisition of Eco Management Korea, and the remaining 30% interest in the SingSpring Desalination Plant in Singapore.
- KIT is in a defensive and resilient sector, providing unitholders with long-term and predictable cash flows. KIT is well-insulated from inflation, where approximately 65% of the Trust’s portfolio has cost pass through mechanisms/CPI-linked, and approximately 30% of the portfolio is in businesses with leading position and price-setting capabilities.
- Some of KIT’s recent sustainability initiatives include growing its exposure to renewable energy to approximately 10% of the Trust’s AUM, towards its 25% AUM renewables target, and championing innovative green energy solutions including collaborations to accelerate the commercial usage of hydrogen in Singapore and explore low carbon water solutions at the Trust’s water plants.
1H 2023 Business Updates:
- Distributable income grew 51.8% to S$132.9 million, while EBITDA grew 42.8% to S$246.3 million in 1H 2023, supported by higher contributions from City Energy and the new acquisitions completed in FY 2022, which contributed $68.6 million or 38.5% of Asset Distributable Income for 1H 2023.
- In May 2023, KIT, together with Keppel Corporation, announced the acquisition of Fäbodliden II, a 17 MW onshore wind farm located approximately 20 kilometres northeast of the Vindeln Municipality in Sweden, as part of the committed pipeline assets sponsored by Fred. Olsen Renewables AS (FORAS). Upon completion, which is expected in 4Q 2023, the addition of Fäbodliden II will increase KIT’s exposure in the renewable energy sector to 740 MW in operating capacity, contributing to KIT’s 25% renewables target by 2030 based on its equity-adjusted AUM.
- Aggregate leverage was 38.5% as at 30 June 2023. KIT raised approximately $300 million through a private placement and preferential offering in April-May 2023 to partially pay down its bridge facilities utilised for its acquisitions in 2022. The Trustee-Manager also paid down $142 million of the bridge facilities via a longer-term debt through City Energy’s loan facility. In July 2023, the Trustee-Manager announced a $130 million loan that will be utilised to repay the remaining $144 million bridge facilities, terming the loan out to 2026.
- The Trustee-Manager continues to monitor risk exposures and safeguards against evolving market conditions. Approximately 77.4% of the Trust’s floating interest rates are fixed and hedged. Excluding the bridge facilities, which would have been fully repaid in 2H 2023, this figure would increase to 82.1%, and a 100 bps change in interest rate would have approximately 1.5% impact to 1H 2023’s Distributable Income. To mitigate the impact of currency fluctuations, KIT hedged 69.2% of its foreign distributions as at 30 June 2023.
- The KIT portfolio remained well-positioned against inflation and higher energy prices due to cost pass through mechanism and availability-based revenue model.
One of the REITs/Trust’s key strengths is their ability to tap on the expertise of their sponsor, Keppel. Keppel has deep capabilities in engineering, developing, owning and operating specialised assets across the areas of infrastructure, real estate and connectivity, which can augment the pipeline of potential assets for its REITs/Trust.
Committed to sustainability, the REITs and Trust also embed ESG considerations into their business strategy and operations. All of them have set clear ESG targets and have board level ESG committees. Through Keppel Capital, the REITs and Business Trust are signatories of the United Nations Global Compact, United Nations-supported Principles for Responsible Investment and CDP. Keppel Capital is also a CDP capital markets signatory, committed to corporate environmental transparency.
So there you have it, an introduction to Keppel’s four REITs and Business Trust in terms of their asset classes, key highlights, along with a quick summary of their 1H 2023 business updates.
As always, I hope the contents presented above have given you a good understanding of them. However, do take note that they do not represent any buy or sell recommendations of any of the REITs and Business Trust discussed. You should always do your own due diligence before you make any investment decisions.
Disclaimer: This post was written in partnership with Keppel. At the time of writing, I am a unitholder of Keppel DC REIT. Do take note that all the opinions expressed above are purely mine for educational purposes only. You should always do your own due diligence prior to making any investment decisions.
Launch Event for My First Book: building your REIT-irement portfolio
After months of hard work, my first book, 'Building Your REIT-irement portfolio' is finally ready! In this easy-to-follow 178-page guide, you'll learn everything you need to know about building a REIT portfolio that can provide for you in your retirement years. You can check out a preview of the book here.
I'm extremely thankful to the team at InvestingNote and ShareInvestor for their help to organise a book launch event for me on Tuesday, 26th September 2023, from 6:00pm to 8:00pm at their office in New Tech Park.
For more details and to RSVP (seats are extremely limited), click on the link below: