KEPPEL REIT (SGX:K71U)
Keppel REIT - Recovery To Growth; Improving Fundamentals; Upgrade To BUY
- Keppel REIT (SGX:K71U)’s 1Q22 distributable income rose 4.3% y-o-y to S$53.8m, while NPI rose 8.6% y-o-y, as the Keppel Bay Tower acquisition helped offset its 275 George St (Brisbane) divestment in Jul 2021. Office demand tailwinds have strengthened its fundamentals, and we raise DPUs forecast for Keppel REIT by 3-5%, on the back of improving occupancy and accelerating rents.
- Leasing velocity is strong, and we see > S$500m in capital distributions cushioning downtime and DPUs.
- We see a favourable risk-reward for Keppel REIT, at 5.1% FY22E dividend yield and 3.5% 2-year DPU CAGR, with limited downside from interest rate and cost sensitivities.
Positive leasing, stronger rental reversion outlook
- Leasing activity rose to 475k sf (from ~298k sf in 4Q21), with new demand and expansion led by real estate & property (43%), manufacturing & distribution (23%), as well as banking, insurance and financial (13%) sector tenancies.
- Rental reversion improved to +7.9% in 1Q22, from +1.9% in 2H21 with average signing rents of S$11.15 psfpm (vs S$10.56 psfpm in 4Q21 and S$10.30psfpm in 3Q21).
- Keppel REIT's management guides a mid-to-high single-digit positive rental reversion into FY22, from low-to-mid single-digit, helped by low S$10.10 psfpm expiring rents, and backfilling of DBS and SCB vacancies at Marina Bay Financial Centre.
Peaking vacancies, costs cushioned
- Portfolio occupancy was lower at 95.1% (from 95.4% in 4Q21) as One Raffles Quay fell from 98.5% management estimates Keppel REIT's DPUs could fall 1-2% based on current prices.
Gearing healthy, looking to add more
- Keppel REIT's gearing was stable at 38.7% (vs 38.4% as at end-Dec 2021) while its interest cost fell to 1.81% BUY from HOLD.
- See
Chua Su Tye
Maybank Research
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https://www.maybank-ke.com.sg/
2022-04-21
SGX Stock
Analyst Report
1.30
SAME
1.200
