SINGAPORE (July 21): Keppel REIT’s 2Q20 and 1H20 distribution per unit (DPU) came within expectations of their FY20F estimates, according to analysts from DBS Group Research, CGS-CIMB, and RHB.
On Monday, the REIT declared a 0.7% y-o-y increase in its DPU to 1.40 cents for 2Q20, and 2.80 cents for 1H20.
The maintained DPU was primarily supported by higher capital distributions and lower borrowing costs for the year, despite the divestment of Bugis Junction Tower, and absence of income support.
Excluding capital distributions, underlying DPU for Keppel REIT fell 3.8% y-o-y.
Following the quarter’s capital distributions, Keppel REIT has $467 million left in capital gains.
The REIT has also guided that its property at 311 Spencer Street in Australia will be contributing from July 2020.
On that, DBS analysts Rachel Tan and Derek Tan have maintained their “buy” call on the counter, with a target price of $1.35, representing a 24% upside.
“Given low expiring rents, rental reversions were strong at 14.2% in 2Q20 and 15.3% in 1H20,” say the analysts.
For FY20F, the analysts forecast total DPU of 5.62 cents, $191 million in distributable income, and $146 million in gross revenue.
CGS-CIMB’s Lock Mun Yee and Eing Kar Mei have also maintained “add” or “buy” on Keppel REIT with an unchanged target price of $1.20.
“While the leasing environment remains challenging, new leases such as HSBC’s 10-year lease at MBFC in Singapore in May 2020 and the Victoria Police’s 30-year lease in Melbourne in Jul 2020, have commenced and these contributions should partly offset income vacuum from longer frictional vacancies from tenant movements such as UBS, in our view,” they write in a note dated July 20.
Lock and Eing have estimated total DPU of 5.7 cents, $194 million in distributable profit, and $178.8 million in gross revenue for FY20F.
RHB analyst Vijay Natarajan has maintained his “neutral” call on Keppel REIT with a higher target price of $1.10 from $1.07 previously, due to the REIT’s “decent” set of 2Q results and resilient portfolio metrics so far.
“While KREIT stands in a relatively good position to wither COVID-19 on the back of strong assets quality and low expiring office rents, a key risk remains downsizing/right sizing of office spaces,” he says in his July 21 note.
On potential acquisitions, refinanced loans in 2020 with lower interest costs, as well as strong positive rent reversions for 1H20, Natarajan has increased DPU for FY20-22F by 1-3% to 6 cents a year.
He also estimates total distributable income for Keppel REIT to come in at $192 million, and $152 million in total turnover for FY20F.
As at 4.31pm, units in Keppel REIT are changing hands 1 cent higher, or 0.9% up, at $1.10.
