Keppel REIT - Maybank Kim Eng 2021-10-26: Leasing Up

KEPPEL REIT (SGX:K71U)

Keppel REIT - Leasing Up

Keppel REIT (SGX:K71U)’s distributable income jumped 20.8% y-o-y in 9M21, and 44.0% y-o-y in 3Q21, with contributions from Victoria Police Centre (in Melbourne), Pinnacle Office Park (Sydney) and Keppel Bay Tower (Singapore). The performance was in line with our estimates and the street.
Keppel REIT's portfolio occupancy rose to 97.1% (from 96.7% in 2Q21), helped by an improvement at OFC, ORQ, Keppel Tower and its Australian properties. Office demand tailwinds have strengthened Keppel REIT’s fundamentals, but DPU growth remains unexciting versus peers.

Maintain HOLD on Keppel REIT with S$1.00 DDM-based target price (COE: 7.0%, LTG: 1.0%).
We prefer CapitaLand Integrated Commercial Trust (SGX:C38U), with catalysts from DPU recovery in 2021, and redevelopment upside. Recent report: CapitaLand Integrated Commercial Trust - Maybank Kim Eng 2021-10-24: In Recovery Mode; Visible Growth Drivers Into FY22e.

Leasing activity rose to ~995k sf in 3Q21 (from ~412k sf in 2Q21/ ~310k sf in 1Q21) with new demand and expansion led by finance (35%), TMT (22%), and manufacturing/ distribution (18%) sector tenancies. Keppel REIT's rental reversion eased to +1.0% (from +4.1% in 2Q21, +10.7% in 1Q21, and +12.7% in 4Q20), with average weighted signing rents (of S$10.30psfpm) lower than 2Q21 (at S$10.93 psfpm).
Grade A office rents have bottomed out and we expect rental reversion to remain positive in 2022, against our estimate of +5% y-o-y recovery, versus its S$10.38 psfpm expiring rents.

Occupancies were stable at Pinnacle underway, and should improve in 4Q21.
With lockdowns eased, we see stronger demand recovery and rental growth prospects for prime grade occupancies across Australia’s office submarkets in FY22.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-10-26

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.000 SAME 1.000