Keppel REIT - RHB Invest 2023-01-30: Laggard Proxy To Resilient Office Sector; BUY

• Keppel REIT’s FY22 results were slightly below estimates, with earnings meeting 96% of our full-year forecast.
• Despite the ongoing technologysector and economic slowdown, Singapore’s office market is expected to stay resilient on low supply and flight-to-quality trends.
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• Valuations are reasonably attractive, at 0.7x book value with a FY23F yield of 6.2%.

Keppel REIT’s FY22 results slightly below estimates

• Keppel REIT (SGX:K71U)'s 2H22/FY22 DPU rose 2.4%/1.4% y-o-y, aided by the first tranche of the anniversary dividend distribution of S$10m . Operational DPU (2H) was lower by 4% y-o-y on higher interest expenses, lower JV & associates income, and a weaker AUD.
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• Portfolio value rose 1.7% h-o-h, with Singapore assets (+2.3% h-o-h) more than offsetting the weakness from assets abroad.
• About 76% of debt is hedged, with every 50bps rise in interest rates affecting Keppel REIT's DPU by 2%.
• Blue & William’s first anchor tenant, Equifax, will consolidate its office space to occupy one-third of the building (~4,350sqm). Management noted signing rental rates were in line with development assumptions of ~900 – 1,100psm pa. The building is on track to be completed by mid-2023. The developer, Lendlease, has been providing 4.5% annual coupon payments during the current development phase, and has also committed to a 3-year rental guarantee on any unlet space after practical completion.

Slightly disappointing Japan entry.

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