Keppel REIT - CGS-CIMB Research 2020-10-20: Higher Operational Income In 3Q20


Keppel REIT - Higher Operational Income In 3Q20

  • Keppel REIT’s 3Q20 income was boosted by new Australian contributions and lower interest expenses.
  • Keppel REIT continues to enjoy positive reversions; gearing healthy at 35%.
  • Reiterate ADD on Keppel REIT with an unchanged DDM-based Target Price of S$1.25.

Keppel REIT's 3Q20 business update

  • In its 3Q20 business update, Keppel REIT (SGX:K71U) reported a gross revenue of S$44.8m, +5.7% y-o-y, while distributable income from operations grew 4.6% y-o-y to S$47.6m with the commencement of 311 Spenser St in Melbourne in July 2020 and lower interest expenses.
  • As Keppel REIT has adopted a half-yearly reporting frequency, no capital gain distribution was declared in this 3Q update.

Reversions remain in positive territory

  • Portfolio committed occupancy stood at 98.3% at end-3Q. Keppel REIT renewed/leased c.332.4k sq ft of space in 3Q20 at an average rental uplift of about 15% and a high retention rate of 94%. Over half of leasing activity came from renewals while another 16.7% came from new leases, mainly from real estate, TMT and banking and financial services sectors.
  • As at end-3Q20, Keppel REIT had 0.9% of leases to be renewed/reviewed in FY20F and a further 20.5% and 17.6% in FY21F and FY22F, respectively.
  • Expiring rents for FY21F average S$9.72psf and S$10.25psf in FY22F. Management expects lease reversions to remain slightly positive for FY21F given the low expiring rental level.
  • In terms of the impact from COVID-19, Keppel REIT estimates that tenant support measures including property tax rebates and rental waivers amounted to c.S$13.8m as at end-3Q. It has also allowed S$1.7m of rents to be deferred.

Robust balance sheet

  • Keppel REIT’s gearing stood at 35% at end-3Q while its all-in interest cost declined q-o-q to 2.39%. Keppel REIT also issued S$300m of perpetual securities in Sep/Oct 2020.
  • Management expects gearing to trend a little higher, but to remain at a still healthy 36.9%, after taking into account the acquisition of the Pinnacle Office Park in Sydney. This puts the group in a strong position to continue to evaluate accretive inorganic growth opportunities.

Reiterate ADD rating on Keppel REIT

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-20
SGX Stock Analyst Report ADD MAINTAIN ADD 1.250 SAME 1.250