SINGAPORE (Oct 16): Analysts have maintained their ‘buy’ calls on Keppel REIT (KREIT) after the latter’s 3Q and 9M results came in broadly in line with their expectations.

KREIT last night reported 3Q18 DPU of 1.36 cents, down 2.9% y-o-y. This also brings 9M18 DPU to 4.20 cents, down 1.6% y-o-y. 3Q18 net property income declined 10.9% y-o-y due to lower contributions from Ocean Financial Centre, 275 George Street and 8 Exhibition Street; partly mitigated by increased contributions from Bugis Junction Towers.

See: Keppel REIT declares 4% lower 3Q DPU of 1.36 cents on lower contributions from assets

For UOB KayHian, KREIT’s 9M18 DPU made up 72% of its full-year estimate. Lead analyst Loke Peihao says KREIT continues to achieve high overall occupancy of 98% on the back of rising office rents and firm leasing momentum in Singapore and Australia.

During the quarter, KREIT also managed to secure HSBC’s HQ relocation to MBFC Tower 2 on a 10-year lease.

In addition, prospects for the Australian office portfolio are promising, with vacancy of 1.1% compared to 2.9% in 2Q18. Management highlighted that leasing enquiries are gravitating towards quality assets. The completion of 311 Spencer Street, Melbourne, is expected in 4Q19, with a pre-committed occupancy of 100%, including a 30-year lease to Victoria Police that will start upon completion of the development.

UOB is has a target price of $1.35 based on DDM.

For DBS Group Research, KREIT’s 9M18 DPU of 4.20 cents represented 76% of its FY18 forecast DPU. In his report “Steady pom pipi”, DBS Group Research lead analyst Mervin Song says although Keppel REIT’s results were hit by prior quarters’ negative rental reversions and weaker AUD, the 8.7% positive rental reversions year to date points to recovery in DPU in 2019.

Song says the increase in rents is largely due to the continued rise in Grade A CBD rents which according to CBRE rose to $10.45 psf/mth from $10.10 psf/mth at end June 2018 and $9.40 at end-December 2017.

For the remainder of the year, Song says another 6.7% of leases are subject to rent reviews which are mainly related to the DBS leases at MBFC Tower 3.

DBS has a target price of $1.41, giving a FY20F yield of 4.1% based on DPU of 5.82 cents.

CGS-CIMB Securities says 3Q/9M DPU of 1.36 cents/4.20 cents made up 23.6%/73% of its FY18 forecast or largely within its projections.

Year to date, the trust has renewed an attributable 855.3k sf of space with an average 8.7% positive rental reversion. Of this, 40% were new leases coming mainly from government agencies, banking, insurance and financial services tenants, lengthening its portfolio weighted average lease expiry to 5.7 years.

Lead analyst Lock Mun Yee says the outlook for the Singapore office market continues to be upbeat with limited new prime Grade A supply, especially in the CBD, and we anticipate rents to continue trending up.

As KREIT has a further 7% of space to be renewed/reviewed for the remainder of FY18 and a further 7.6% in FY19, this should continue to drive DPU growth going forward.

Finally, there is the potential for KREIT’s manager share buyback to resume with its units now trading below recent buyback price given KREIT in 3Q bought back 0.16% of its units as part of its share buyback programme.

CGS-CIMB has a target price of $1.34, giving a FY20F yield of 4.6% based on DPU of 6.2 cents.

Separately, Deutsche Bank is maintaining its “buy” with $1.25 target price given the office sector should continue to outperform, given the limited supply while Jefferies also has a “buy” with $1.28 target as Singapore outlook is positive due to tapering supply and continued demand and leasing activity remains healthy in Australia.

Year to date, units in Keppel REIT are down 11% to $1.12.