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Investors 'yet to appreciate' Keppel REIT, Singapore's only pure-office REIT: DBS

Jovi Ho
Jovi Ho12/14/2021 11:19 AM GMT+08  • 2 min read
Investors 'yet to appreciate' Keppel REIT, Singapore's only pure-office REIT: DBS
Keppel Bay Tower, one of the properties that's part of Keppel REIT's portfolio / Keppel
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As the only pure-office REIT now, Keppel REIT (KREIT) is recycling assets at top speed, say DBS Group Research analysts Rachel Tan and Derek Tan.

KREIT has announced the acquisition of Blue & William, a freehold Grade A office building under development located in North Sydney, Australia for A$327.7 million ($322.2 million). The acquisition will be fully debt-funded.

The acquisition will increase its Australia portfolio to 19.5% from 16.4% by assets under management (AUM), and the proportion of freehold assets in its portfolio to 32.6% by net lettable area (NLA).

In a Dec 13 note, the analysts are maintaining “buy” on Keppel REIT, with a target price of $1.40, which represents a 22% upside.

“KREIT had charged ahead with its asset recycling strategy at great speed compared to its peers. Shortly after delivering two acquisitions in FY2020 and divesting its 50% stake in 275 George St in July 2021, KREIT has inked another accretive acquisition before the year ends. This indeed sets a new Keppel paradigm of portfolio optimisation and asset recycling strategy,” say the analysts.

“We view the acquisition as a positive addition to KREIT’s portfolio, delivering approximately 3% accretion upon completion and good portfolio metrics that would ensure earnings visibility in the medium term,” write the analysts.

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“In addition, pro forma gearing at slightly below 40% still has debt headroom for future acquisitions. We believe the asset is well-located in a suburban office/business campus at city fringe, which would be a much sought after by prospective tenants,” they add.

Post the CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) merger, KREIT is the only pure-office real estate investment trust (REIT), “a valuable trait that we believe investors have yet to appreciate,” say the analysts.

“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 tight net supply market. Valuation remains attractive at a 0.9 times price/net asset value (P/NAV), close to the sector’s historical mean,” they add.

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DBS analysts remain positive on KREIT, as the best-in-class office portfolio is expected to lead the office recovery. “In addition, KREIT has been charging ahead with its asset recycling strategy at top speed compared to its peers to deliver inorganic growth with accretive acquisition.”

As at 11.10am, units in Keppel REIT are trading flat at $1.13.

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