DBS Group Research is keeping its “buy” recommendation on Keppel REIT (KREIT) with a target price of $1.40.
In a Dec 10 report, lead analyst Rachel Tan says, “KREIT’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.
Post the CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) merger, KREIT will be the only pure-office real estate investment trust (REIT), a valuable trait that Tan believes investors have yet to appreciate.
Although the Covid-19 pandemic has brought about rental pressures for the REIT, its low expiring rents provide enough buffer to weather rent declines.
On the stock’s valuation, Tan says, “We revised downward our FY2021-FY2022 distributable income (DI) estimates by 4% to 5% to factor in some potential vacancies ahead with the adoption of flexible work arrangements.”
However, KREIT has ample capital distributions buffer to offer stronger DPU growth and well positioned to capture growth from China tech giants
Currently, the stock remains attractive, trading at 0.8 times price/net asset value (P/NAV), below the sector’s historical mean.
“KREIT trades at a lower velocity compared to its other large-cap Singapore REITS (SREITs), 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,” adds Tan.
As at 11.55am, units in KREIT are trading at $1.05 or 29.2 times FY2020 earnings with a distribution yield of 5.4%.
