Keppel REIT - DBS Research 2020-12-10: Keeping To The Right “Byte”


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.

Buffer from low expiring rents.

  • Despite rental pressure, Keppel REIT's low expiring rents provide enough buffer to weather rent declines.

Keppel REIT - Valuation:

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 | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-12-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 SAME 1.400