KEPPEL Corp on Monday said its asset management arm, Keppel Capital, is partnering the National Pension Service of Korea (NPS) to explore investment opportunities for private infrastructure in Asia.

 

The cooperation will bring together the asset management expertise of both NPS and Keppel Capital.

 

Keppel Capital will also be able to leverage the Keppel Group' s ability to develop, operate and maintain real assets such as energy and environmental infrastructure, including renewables and related technology solutions, urban development and connectivity solutions, Keppel Corp said.

 

The latest tie-up builds on an earlier commitment by NPS to Keppel Capital' s private infrastructure initiative.

 

Beyond infrastructure, there will also be potential collaboration opportunities across other asset classes where Keppel Capital is active, such as real estate and data centres, as well as other new sectors like senior living.

 

Christina Tan, chief executive officer of Keppel Capital, said the firm is glad to partner NPS, the world' s third-largest pension fund, to jointly explore investment opportunities in the infrastructure space in Asia.

 

The partnership is not expected to have a material impact on Keppel Corp' s net tangible assets or earnings per share for the current financial year.

 

KEPPEL Reit is acquiring a freehold commercial property in Sydney for A$306 million (S$303.3 million), the real estate investment trust' s manager said on Sunday.

 

It entered into an agreement with Sydney-based Goodman Group to acquire a 100 per cent stake in Pinnacle Office Park, a freehold Grade A commercial property comprising three office buildings in Macquarie Park, the Reit manager said in a press release.

 

The acquisition is set expected to be completed in the fourth quarter and will be fully funded with Australian dollar-denominated debt for natural hedging, it said. Post acquisition, aggregate leverage would be approximately 38.7 per cent.

 

Assets under management will grow to S$8.2 billion across 10 properties, with 77 per cent held in Singapore, 19.4 per cent in Australia and 3.6 per cent in South Korea.

 

" With an initial net property income yield of 5.25 per cent, the acquisition of Pinnacle Office Park is in line with our active portfolio optimisation strategy to improve Keppel Reit' s income resilience and portfolio yield," Paul Tham, chief executive of Keppel Reit Management, said in a statement.

 

Mr Tham said the company believes demand in Australia for quality and well-networked metropolitan locations, such as Macquarie Park, will increase as more companies seek cost-effective solutions or adopt a hub-and-spoke business model for office locations in the wake of the Covid-19 pandemic.

 

The acquisition of this property allows Keppel Reit to gain exposure to this key metropolitan office market, while strengthening its portfolio, he added.

 

The property has a total net lettable area of 35,132 square metres and is well served by public transport and major arterial roads that provide direct links to the central business district (CBD), the Reit manager said .

 

While there are on-site amenities such as a childcare centre, a gymnasium, end-of-trip facilities and a cafe, the property is also close to a range of retail, food and entertainment options at Macquarie Centre, the city' s largest suburban shopping centre, it added.

 

Commuting time to Macquarie Park, the second largest office market in New South Wales, is expected to improve to 20 minutes when the new City and Southwest metro is completed in 2024, the Reit manager said.

 

One of the three free-standing buildings, 6 Giffnock Avenue, has the potential to be redeveloped into a new office building with higher net lettable area in future, subject to approval by local authorities, it noted.

 

With an established tenant base, Pinnacle Office Park has a committed occupancy of 96.3 per cent, the Reit manager said. Key tenants include Australia-listed Aristocrat Technologies, Konica Minolta and Coles Supermarkets.

 

The property has a weighted average lease expiry of 4.8 years by net lettable area, and its existing leases have fixed annual rental escalations of between 3 per cent and 4 per cent, it said.

 

Mr Tham said the company believes demand in Australia for quality and well-networked metropolitan locations, such as Macquarie Park, will increase as more companies seek cost-effective solutions or adopt a hub-and-spoke business model for office locations in the wake of the Covid-19 pandemic.

 

The acquisition of this property allows Keppel Reit to gain exposure to this key metropolitan office market, while strengthening its portfolio, he said.

 

KEPPEL Reit' s trustee has priced S$150 million of fixed-rate subordinated perpetual securities at 3.15 per cent, the real estate investment trust (Reit) manager announced late on Monday night.

 

The new perps are expected to be issued at par on Sept 11, and listed on the Singapore bourse on or around Sept 14, the Reit manager said.

 

Net proceeds from this issue after deducting expenses will be used to refinance the trustee' s existing S$150 million, 4.98 per cent subordinated perps.

 

The issuer may opt to redeem the perps at par in whole, but not in part, on Sept 11, 2025 or on any distribution date thereafter.

 

Being perpetual, these securities have no fixed final redemption date.

 

Keppel Reit will issue the perps under its S$1 billion multicurrency debt issuance programme.

 

OCBC has been appointed as the sole lead manager and bookrunner of the offering.

 

As far back as he can remember, the twin touchstones of real estate executive Paul Tham' s life have been wisdom and learning.

 

Growing up, a familiar mantra was one from the Book of Proverbs: " Wisdom is the principal thing therefore get wisdom: and with all thy getting get understanding."

 

Mr Tham, chief executive of the manager of Singapore Exchange-listed Keppel Reit, recalls: " My godfather taught me the importance of wisdom and understanding.

 

" Both are tied to two key skills - the willingness to learn, as well as the ability to learn continuously - and involve lots of hard work."

 

Driven by a passion to build, Mr Tham began his career as a structural engineer in New York, after earning a Bachelor of Science degree in civil and environmental engineering from Cornell University.

 

" I was picking up different skills every day," recalls Mr Tham, 38, who also holds a master' s degree in business administration from Singapore Management University.

 

" In one... volunteer project to build a school in upstate New York, we ended up doing most of the construction work ourselves - driving forklifts and operating small excavators. That was one of the most satisfying projects I was involved in."

 

His next stop - Bain & Company, as a management consultant working with multinationals in the Asia-Pacific on a wide range of functions, including growth strategies.

 

" Management consulting teaches you to learn continuously," he notes. " You' re working on new projects, reading reports, asking questions all the time. You have to work hard to pick up knowledge on new industries and markets.

 

" And the fastest way to learn is to tap the expertise and experience of others."

 

In 2014, Mr Tham joined Keppel Corp' s strategy and development unit and played a key role in the formation of Keppel Capital, eventually becoming CEO of Keppel Reit Management last year.

 

PORTFOLIO OPTIMISATION

 

Keppel Reit listed here in April 2006. It has a portfolio of Grade A commercial assets in prime business districts across the region.

 

Its assets under management total about $8 billion in Singapore, Sydney, Melbourne, Brisbane, Perth and Seoul.

 

IMPORTANT LESSON

 

My godfather taught me the importance of wisdom and understanding. Both are tied to two key skills - the willingness to learn, as well as the ability to learn continuously - and involve lots of hard work.

 

MR PAUL THAM , chief executive of Keppel Reit Management, on his two touchstones of wisdom and learning.

The Reit is sponsored by Keppel Land and managed by Keppel Reit Management, a wholly owned unit of Keppel Capital.

 

Mr Tham has implemented key strategies to put the trust on a steady growth trajectory.

 

The first is portfolio optimisation, which allows the Reit to achieve long-term sustainable returns.

 

This includes divesting lower-yielding assets and so increasing the flexibility to fund growth through reinvestment, continuing its unit buyback programme, distributing capital gains and paring debt.

 

" Over the last two years, we' ve divested about $1.1 billion worth of assets," Mr Tham says, pointing to the paring of a 20 per cent stake in Ocean Financial Centre in December 2018 and the sale of Bugis Junction Towers last November.

 

" The focus is to enhance distribution per unit (DPU), and it seems to be working, with Keppel Reit seeing the first year-on-year increase in DPU in 2019 after five years of decline."

 

DPU edged higher to 5.58 cents for the 12 months to Dec 31 last year, up from 5.56 cents the previous year.

 

The second prong of Mr Tham' s strategy involves boosting capital efficiency by managing both debt and equity. In mid-2018, the trust became the first Reit in Singapore to run a DPU-accretive, unit buyback programme. It had bought and cancelled 95.3 million units as at Dec 31 last year.

 

" We' ve seen the benefits in our first-half 2020 financial results, where distributable income was largely similar, but DPU rose due to a smaller unit base."

 

The Reit has also reduced its overall cost of debt.

 

Keppel Reit will remain Singapore-centric, Mr Tham said. " There will be a shift as we raise our overseas exposure, but it will be marginal, for example, lifting it to 25 per cent or even 30 per cent from 20 per cent.

 

" Investing in assets across Australia and South Korea enhances our ability to deliver sustainable returns through changing property cycles in these different markets."

 

Australian leases tend to run five to 10 years versus Singapore' s three to five years. " These longer leases... offer more stability and increase the Reit' s ability to grow DPU, even if one market is experiencing a down cycle," he added.

 

The coronavirus outbreak has created headwinds, of course.

 

" Covid-19 has been challenging for retail and hospitality assets, but for an office landlord like us with a small retail component, there' s been minimal impact," Mr Tham notes.

 

" Nonetheless, there' s a fair amount of uncertainty due to the global recession and rising geopolitical tensions, so our main focus is engagement with our tenants."

 

At one end of the spectrum, tech-related tenants are still expanding, fuelled by digitalisation trends that accelerated in the pandemic. At the other end, hospitality and travel-related businesses are struggling.

 

Future-proofing the Reit' s commercial spaces is key, Mr Tham says. " We need to ensure our buildings have the best-in-class infrastructure such as... advanced filtration systems."

 

The focus on future-proofing can be seen from the use of a security robot that patrols Ocean Financial Centre to enforce safe-distancing measures.

 

Longer term, how tenants use spaces will also evolve. Mr Tham says: " Physical offices will remain a necessity, although the form and functions of the office will evolve.

 

" Many firms will likely incorporate work-from-home protocols... and employees and tenants will want more flexibility.

 

" Space for each employee may be increased to incorporate social distancing within an office layout, reversing the trend of higher density over the last two decades."

 

The resulting impact on office demand is likely to be a measured one as tenants reassess their needs.

 

In tandem with these considerations, the repositioning of assets has emerged and will continue to gain momentum. Mr Tham says: " At the end of the day, owning the right assets will be instrumental to landlords surviving, and thriving."

 

KEPPEL Reit (real estate investment trust) declared a distribution per unit (DPU) of 1.40 Singapore cents for the second quarter ended June 30, a notch above its DPU of 1.39 Singapore cents from the same period a year ago.

 

Distributable income was up 0.4 per cent to S$47.5 million, including capital-gains distribution of S$5 million for Q2. This was despite net property income declining by 7.2 per cent to S$28.8 million from a year ago.

 

For the half year of 2020, Keppel Reit&rsquo s DPU went up 0.7 per cent to 2.80 Singapore cents, while distributable income ticked up 0.2 per cent to S$94.8 million.

 

This comes on the back of contributions from T Tower in Seoul, the commencement of major leases in the Singapore portfolio, higher capital-gains distribution, and lower borrowing costs.

 

For the half year of 2020, Keppel Reit&rsquo s net property income fell 5.4 per cent to S$59 million.

 

The Reit has a portfolio committed occupancy of 98.6 per cent, and long portfolio weighted average lease expiry (WALE) of 4.6 years.

 

Keppel Reit&rsquo s manager estimated that, based on the initial eligibility criteria of the Covid-19 Temporary Measures Amendment Bill, about 4.2 per cent of its tenants qualify for mandatory relief in Singapore. The bill provides for eligible small and medium-sized enterprise (SME) retail tenants in Singapore to receive a minimum of four months of rental support from the government and landlord. Office SME tenants who qualify will receive two months of rental support co-shared by the government and landlord.

 

In addition, Keppel Reit has allowed eligible tenants to utilise part of their security deposit to offset rental payments and defer a certain amount of rent under a prescribed repayment scheme.  

 

In Australia, partial rent waivers and deferrals are being progressively granted to qualifying SME tenants, as guided by the &ldquo Mandatory Code of Conduct&rdquo issued by the Australian National Cabinet. Australian SMEs constitute approximately 1.4 per cent of Keppel Reit&rsquo s portfolio.

 

Meanwhile in South Korea, none of Keppel Reit&rsquo s tenants qualify for mandatory relief measures.

 

Keppel Reit&rsquo s tenant-support measures are estimated to amount to S$12.5 million as at June 30, 2020. These include the full pass‐ through of property tax rebates and cash grants from the Singapore government, estimated to stand at S$9.2 million. Additionally, as at June 30, 2020, Keppel Reit has allowed $1.6 million of rents to be deferred.

 

The manager said that it will continue to review the situation and provide further targeted support where required.  

 

In its outlook, the manager noted that the Covid‐ 19 pandemic continues to present &ldquo unprecedented challenges&rdquo to the business community, with its impact on the global economy yet to be fully determined.

 

The manager added that it &ldquo remains focused on maintaining stable and sustainable distributions to unitholders, and achieving long‐ term growth&rdquo . 

 

The DPU for Q2 will be paid out on Aug 28, with a record date of July 28.