Keppel REIT: Valuation Maintained After In-Line Business Update

We maintain our fair value estimate of SGD 1.16 per unit for Keppel REIT after the trust’s in-line first-quarter 2024 business update. Net property income grew 7.2% year on year on the back of higher rentals from Ocean Financial Centre and contributions from 2 Blue St., which completed its development in April 2023. However, distributable income remained flat year on year due to higher borrowing costs. The portfolio occupancy rate stayed healthy at 96.4% as of March 31, 2024, and the trust registered a positive rental reversion of 10.9% during the quarter. That said, occupancy rates for two of its Australian properties, 8 Exhibition St. and Pinnacle Office Park, were below 90% as of March 31, 2024. For 8 Exhibition St., the drop in occupancy was due to a major tenant's nonrenewal. Management said that half of the vacated space is under negotiation and it hopes to lease the vacant space by the end of 2024. As for Pinnacle Office Park, the trust completed the speculative suites' fitout in February 2024, ahead of schedule. According to management, the suites are being well received by prospective tenants, and more than half of the space has been committed or is under offer.