Analysts from CGS-CIMB Research, Maybank Kim Eng and RHB Group Research are mixed after Keppel REIT released its results for the 2HFY2020 and FY2020 ended December on Jan 25.

See: Keppel REIT announces higher 2H2020 and FY2020 DPU, boosted by Aussie acquisition


To be sure, the brokerages have maintained their recommendations at “add”, “sell” and “neutral” respectively.

CGS-CIMB and RHB have also increased their target prices on the REIT to $1.29 from $1.25, and $1.20 from $1.14 respectively.

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Maybank Kim Eng has maintained its target price at 90 cents.

For CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei, Keppel REIT’s 2HFY2020 distribution per unit (DPU) and FY2020 DPU of 2.93 cents and 5.73 cents respectively came in “slightly above” their FY2020 projects.

Keppel REIT also revalued its portfolio down by 1.5% at end FY2020, which puts it at book/value (B/V) per unit of $1.29, say the analysts.

In its results, the REIT revealed that it had a high portfolio occupancy of 97.9% as at Dec 31, 2020, and positive rental reversion of 14.8% in FY2020 (and +12.7% in 4QFY2020).

“Looking ahead, Keppel REIT has 17.5% and 16.8% of leases to be renewed/reviewed in FY2021 and FY2022 respectively. With expiring rents averaging a low $9.76 per sqft in FY2021, management expects to continue to achieve positive reversions when these leases are re-contracted,” note Lock and Eing.

The analysts also view visible inorganic growth drivers in the REIT, which includes the acquisition of Pinnacle Office Park in Sydney in December 2020 and the recently proposed acquisition of Keppel Bay Tower.

Post-results, Lock and Eing have, thus, increased their FY2021-2022 DPU projects by 0.52% and 0.56% respectively.

“Potential catalysts include the redeployment of divestment proceeds to new accretive acquisitions and a better-than-projected office rental market, while downside risks include longer-than-expected frictional vacancy from tenant movements due to a slowdown in demand for office space,” they say.

RHB’s Vijay Natarajan has also viewed Keppel REIT’s earnings as in line with his forecasts.

“Despite the challenging market, portfolio occupancy has held up so far with healthy positive rental reversions. The REIT has also been growing inorganically and announced two accretive acquisitions worth $1 billion in 2HFY2020. While we glean positives out of the recent developments, the stock is trading close to its fair value (1 times price to book value or P/BV) and we recommend investors to accumulate on dips,” he writes.

As Keppel REIT’s FY2020 DPU increased by 3% y-o-y driven by contributions from the acquisition of T Tower and completion of Victoria Police Centre, Natajaran says he expects FY2021 DPU to increase by 7% y-o-y on the back of earnings accretion from acquisitions, full-year contribution from Victoria Police Centre, as well as lower borrowing and perpetual costs.

Natarajan, however, expects a slight dip to happen in the REIT’s portfolio occupancy as about 12% of its leases are due in FY2021, but positive rent reversions are estimated to continue.

On the acquisition of Keppel Bay Tower, Natarajan “likes” the prospect as he believes that there is room for growth from redevelopment. This is done by tapping into the larger planned redevelopment of the Greater Southern Waterfront area.

Natarajan has also upped his DPU estimates for FY2021-2022 by 1-3% on the back of accretive earnings contributions from the REIT’s recent acquisitions.

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While Maybank Kim Eng’s Chua Su Tye sees the REIT’s 2HFY2020 DPU as ahead of his estimates and in line with street estimates, he remains negative on its prospects.

Seeing “headwinds ahead”, Chua notes that rents have moderated and that the REIT’s outlook remains challenging given the uncertainties in office demand.

“We continue to see headwinds for leasing out vacancies and at pressured rents. This is especially in the coming quarters as firms reassess options post-Covid. We anticipate further downsizing by financial institution tenants (around 33% of its net lettable assets or NLA). Keppel REIT’s DPU growth is unexciting versus peers, and we maintain ‘sell’ at a target price of 90 cents,” he says.

He adds that there are limited acquisition catalysts for its Singapore portfolio.

“[Keppel REIT’s] high trading yield versus tighter Singapore office yields suggests further acquisition growth opportunities are likely to be overseas (South Korea and Australia),” he says.

As at 3.42pm, units in Keppel REIT are trading 2 cents higher or 1.7% up at $1.20.