KEPPEL REIT (SGX:K71U)
Keppel REIT - Keeping To The Right “Byte”
- Keppel REIT kick-started acquisition mode with purchase of Pinnacle Office Park which will contribute to revenue in FY21.
- Moderate our FY21F-FY22F distributable income estimates to factor in potential vacancies ahead with increasing adoption of flexible work arrangements.
- However, Keppel REIT has ample capital distributions buffer to offer stronger DPU growth and well positioned to capture growth from China tech giants. See Keppel REIT - DBS Research 2020-10-20: Dancing To The Right Byte!
- Maintain BUY; target price of S$1.40.
Keppel REIT - Investment Thesis
Best-in-class office portfolio.
- Keppel REIT (SGX:K71U)'s best-in-class office portfolio, anchored by Singapore Grade A offices in prime central business district (CBD) locations, is well positioned to benefit from a potential recovery in a very tight net supply market.
- Keppel REIT's valuation remains attractive at 0.8x price/net asset value (P/NAV), below the sector’s historical mean.
The only pure-office REIT.
- Post the CapitaLand Mall Trust and CapitaLand Commercial Trust merger, Keppel REIT will be the only pure-office real estate investment trust (REIT), a valuable trait that investors have yet to appreciate.
Buffer from low expiring rents.
- Despite rental pressure, Keppel REIT's low expiring rents provide enough buffer to weather rent declines.
Keppel REIT - Valuation:
- Our discounted cash flow (DCF)-based target price of S$1.40 assumes risk-free rate and beta of 2% and 0.75 respectively, and implies 1.04x P/NAV, which is close to +1 SD (standard deviation) of its historical mean since listing, and 4.3% FY21F yield.
- We roll our valuations forward to FY21F. We revised downward our FY21F-FY22F distributable income (DI) estimates by 4% to 5% to factor in some potential vacancies ahead with the adoption of flexible work arrangements.
- See Keppel REIT Share Price; Keppel REIT Target Price; Keppel REIT Analyst Reports; Keppel REIT Dividend History; Keppel REIT Announcements; Keppel REIT Latest News.
Where we differ:
- More optimal shareholding structure. Keppel REIT trades at a lower velocity compared to its other large-cap Singapore REITS (S-REITs), which we believe can be addressed if the Sponsor considers paring down its stake to a more optimal 30-35% level, similar to other large-cap S-REITs.
Key Risks to Our View:
- Slower-than-expected economic recovery and potential second wave of COVID-19. Key risks to our positive view are a prolonged economic downturn and potential second wave of COVID-19 that could impact rents and vacancies.
- Risks to capital values. Prolonged weakness in the economy and office market may trigger a decline in capital values.
Rachel TAN
DBS Group Research
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Derek TAN
DBS Research
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https://www.dbsvickers.com/
2020-12-10
SGX Stock
Analyst Report
1.400
SAME
1.400
