Analysts at CGS-CIMB Research, OCBC Investment Research (OIR) and UOB Kay Hian are keeping their calls and target prices on Keppel REIT K71U following the trust’s 1HFY2023 ended June results announcement.
For the period, Keppel REIT reported a 4.7% rise in revenue to $114.9 million, but net property income (NPI) was flat at $89.9 million due to higher property expenses including utility costs.
DPU was down 1.4% y-o-y to $109 million on the back of lower associate and joint venture contributions as well as higher interest expense, partly offset by its anniversary distribution of $10 million. These results are broadly within the analysts expectations.
CGS-CIMB analysts Lock Mun Yee and Natalie Ong highlight that Keppel REIT achieved a positive rental reversion of 8.1% in 1HFY2023. The trust has an estimated 4.2% of lease renewal and reviews for the remainder of FY2023, as well as a further 16.2% in FY2024.
“We believe Keppel REIT should likely continue to benefit from positive rental reversion as the average rents of its Singapore leases expiring in 2023 and 2024 are at $11.55 and $11.06 per sq ft respectively, versus the $12.35 per sq ft rent it achieved in 1HFY2023,” the analysts add. CGS-CIMB has an “add” call on Keppel REIT with a target price of $1.14.
Citing CBRE Research’s data, OIR analysts point out that core CBD Grade A office rent increased 0.4% q-o-q in 2Q2023 to $11.80 per sq ft, which is still above Keppel REIT’s average expiring rents. The analysts note that Keppel REIT is hoping to achieve single-digit positive rental reversions in Singapore in 2HFY2023, as market rental outlook appears flattish currently. OIR has a “hold” call on Keppel REIT with a fair value of 87 cents.
Blue & William, the REIT’s freehold Grade A office building with net lettable area of 151,128 sq ft in close proximity to North Sydney train station achieved practical completion on April 3. It has secured a second tenant from the banking sector and committed occupancy has improved to 37.7%.
UOBKH’s Jonathan Koh highlights that Keppel REIT is in talks with a few prospective tenants for the remaining office space. “The developer Lendlease has provided a rental guarantee on unlet space for three years from the date of practical completion, which ensures the property is able to provide an NPI yield of 4.5%,” Koh says.
Additionally, Keppel REIT is negotiating with a new prospective tenant at 8 Chifley Square in Sydney, which has the potential to lift occupancy above 90%. Koh notes that the REIT has fitted out two floors of office suites at Tokyo’s KR Ginza II to attract new tenants.
Units in Keppel REIT are trading at an unchanged 91.5 cents as at 12.03pm.
