SINGAPORE (April 20): Maybank Kim Eng Research is keeping its “buy” recommendation on Keppel REIT with an unchanged price target of $1.18.
This comes despite Keppel REIT on Wednesday posting a 13.7% drop in distribution per unit (DPU) to 1.45 cents for the first quarter ended March 31.
Distributable income fell 11.6% to $48.1 million in 1Q, from $54.4 million a year ago.
(See: Keppel REIT 1Q DPU falls 13.7% to 1.45 cents)
“1Q17 DPU was a slight miss,” says Maybank analyst Derrick Heng in a report on Thursday. “While we continue to forecast falling DPUs, KREIT’s undemanding valuation of 0.7x P/BV and 6% yield more than compensate for this.”
In addition, Heng believes Keppel REIT’s management will be able to mitigate any income weakness through capital distributions.
Meanwhile, Heng points to the slowing rate of rent decline as an affirmation of the research house’s view that the market is bottoming.
Keppel REIT’s portfolio saw a negative rent reversion of 1% in 1Q17 – a “significant improvement” from the negative reversion of 9% in FY16.
“This, along with a slower pace of rent decline in the market, reinforces our view of a bottoming office market,” says Heng.
As at 11.47am, units of Keppel REIT are trading 1.5 cents lower at $1.06.
