Keppel REIT - OCBC Investment 2024-01-31: Slight Decline In FY23 DPU As Expected

• Keppel REIT (SGX:K71U)’s 2H23 property income and net property income (NPI) increased 7.9% and 7.0% y-o-y to S$118.2m and S$92.5m (NPI attributable to unitholders rose 6.4% to S$83.0m), respectively. However, DPU fell 1.7% y-o-y to S$0.029 due largely to lower interest income from advances to associates, higher borrowing costs and an enlarged unit base.
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2H23 results met our expectations

• For the full year FY23, Keppel REIT’s DPU declined slightly by 2.0% to S$0.058 even though its anniversary distribution doubled to S$20m. This was within our expectations, as FY23 DPU or 99.1% of our forecast.

Mostly positive operating metrics

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• Positive rental reversions of 9.9% were achieved in FY23, and this can be broken down into +9% in Singapore, +16.3% in Australia and +12.5% in South Korea.
• Average signing rents for Keppel REIT’s Singapore office leases in FY23 were S$12.41 per square foot per month (psf pm). Taking this and CBRE Research’s core CBD Grade A office market rent of S$11.90 psf pm and comparing it with Keppel REIT’s average expiring rents of S$11.19 psf pm for 2024, we believe there is still room for Keppel REIT to deliver positive rental reversions.
• Management’s guidance is for a mid-to high-single digit rental uplift for its FY24 office lease renewals in Singapore.

Stable portfolio valuations overall as aggregate leverage ratio declined to 38.9%

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OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2024-01-31 SGinvestors.io

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