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Keppel Reit – Capital distribution

by Augustine // November 29, 2022  

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Excerpts from UOBKayHian report

Keppel Reit (SGX: K71U)

  • Keppel Reit (KREIT) achieved a strong positive rental reversion of 9.2% in Singapore for 3Q22. Portfolio committed occupancy also improved 1.3ppt qoq to 96.8%.
  • Cost of debts rose from 1.9% in 1H22 to about 2.5% in 3Q22. Management has set aside S$100m from accumulated capital gains to be distributed over the next five years.
  • KREIT provides 2023 distribution yield of 6.5% (CICT: 6.4% and Suntec: 6.4%). P/NAV is attractive at 0.65x.
Maintain BUY with a target price of S$1.24.

Keppel Reit maintains positive growth momentum

Keppel REIT (KREIT) reported distributable income of S$165.4m for 9M22 (+3.4% yoy), which is in line with our expectations. Growth was driven by the acquisition of Keppel Bay Tower on 18 May 21, partially offset by the divestment of 275 George Street and lower contribution from 8 Chifley Square in Sydney. Portfolio occupancy improved 1.3ppt qoq to 96.8%.

Singapore office occupancy climbing higher

KREIT achieved positive rental reversion of 9.2% for 3Q22. Occupancy at One Raffles Quay (ORQ) improved 6.2ppt qoq to 100% due to expansion by a technology tenant. Occupancies at Ocean Financial Centre (OFC) and Keppel Bay Tower (KBT) also improved by 3.3ppt and 2.9ppt qoq respectively to 96.1% and 98.2%. Average signing rents were S$11.47psf for 9M22. Tenant retention ratio was healthy at 82%. KREIT has backfilled 75,000sf of space vacated by DBS at MBFC Tower 3. 70% of the 200,000sf space vacated by Standard Chartered Bank at MBFC Tower 1 was backfilled.

Pockets of weakness in Australia

Occupancy at 8 Chifley Square in Sydney remains low at 82.0% due to lease expiry by Quantium, which has yet to be backfilled. Occupancy at Pinnacle Office Park in Sydney eased 4.2ppt qoq to 88.8% due to downsizing by a tenant providing travel services. Victoria Police Centre in Melbourne maintained full occupancy.

Valuation/Recommendation

Maintain BUY. Our target price of S$1.24 is based on DDM (cost of equity: 6.75%, terminal growth: 1.9% (previous: 2.3%)). Positive outlook for the office sector with limited supply and healthy pre-commitments within core CBD. Practical completion of Blue & William in mid-23.
Keppel Reit share price chart
You can find the full report here and the company website here
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