Keppel REIT - UOB Kay Hian 2024-07-31: Pick-up In Growth In Australia & North Asia

• NPI from Singapore, Australia and North Asia grew 4.1%, 12.3% and 13.8% y-o-y respectively in Singapore dollar terms. DPU declined 3.4% y-o-y, mainly attributable to a 29.8% y-o-y increase in borrowing costs. 255 George Street, which provides a yield of above 6% and DPU accretion of 1.4%, would contribute more significantly in 2H24. KREIT provides an attractive 2025 distribution yield of 6.7% (CICT: 5.2%, Suntec: 5.8%) and P/NAV is at 0.70x. Maintain BUY. Target price: S$1.15.
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Broad-based progress.

• Keppel REIT achieved a healthy positive rental reversion of 9.3% on a portfolio-wide basis for 264,000sf of leases committed in 1H24. Tenant retention was healthy at 64%. New leasing demand and expansion were derived mainly from the financial services, technology, media & telecommunications and legal sectors.
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Singapore: Broad-based resiliency.

• NPI from Singapore increased 4.1% y-o-y to S$127.7m in 1H24. Singapore maintained a high and stable occupancy of 98.9% in 2Q24. Ocean Financial Centre maintained full occupancy of 100%, while occupancy at One Raffles Quay and Marina Bay Financial Centre was stable at about 99%.
• Average signing rent for Singapore offices was S$12.63psf/month.
• Keppel REIT is expected to sustain positive rental reversion given that average expiring rent is low at S$10.77psf/month in 2H24. Management has guided for positive rental reversion at high single-digit for 2024.

Australia: Increased contributions from development project and acquisition.

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Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2024-07-31 SGinvestors.io

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