CGS International analyst Lock Mun Yee has kept her “add” call on Keppel REIT even though the REIT’s distribution per unit (DPU) for the 2HFY2024 and FY2024 ended Dec 31, 2024, stood below her expectations.
Keppel REIT’s 2HFY2024 DPU fell by 3.4% y-o-y to 2.80 cents while FY2024 DPU also fell by 3.4% y-o-y to 5.60 cents. Both were below Lock’s full-year forecasts at 47.1% and 94.3% respectively due to higher interest costs.
In FY2025, the REIT has some 13.4% leases that are up for renewal and, or review, as well as a further 21.5% of leases up for the same in FY2026. In its results briefing, the REIT manager said it still expects to achieve healthy rental reversions for these leases, given the low average expiring rents of its Singapore leases of $11.31/ $12.06 per sq ft in FY2025/FY2026, notes Lock.
However, the analyst has lowered her DPU estimates for FY2025 and FY2026 by 6.38% and 5.64% respectively due to the REIT manager indicating that it will be receiving 25% of its fees in cash for FY2025 and thereafter. The REIT manager had received 100% of its fees in units in FY2024.
With the lower DPU estimates, Lock’s target price is also lowered to $1.09 from $1.15 previously.
In her view, better portfolio occupancy and higher average passing rents within its portfolio are potential catalysts while downside risks include longer-than-expected frictional vacancy from tenant movements that stem from a slower-than-expected backfilling of office space, and reduced appetite for its office space due to adoption of a hybrid work environment.
See also: Data centre S-REITs’ sell-off ‘overdone’ and ‘unjustified’, says Citi
As at 10.58am, units in Keppel REIT are trading 0.5 cents higher or 0.58% up at 86.5 cents.
