Brokers' take: RHB sees value emerging at Keppel Reit's levels, upgrades to 'buy'

RHB on Wednesday upgraded Keppel Reit to "buy" from "neutral", as it remains optimistic on the real estate investment trust's (Reit) long term fundamentals. It also sees value emerging at present levels - where Keppel Reit is trading at 0.8 times its book value.

The upgrade comes after the Reit's unit price tumbled 13 per cent over the last month.

The research team attributed Keppel Reit's recent sell down to investors' concerns over the proposed paring down of its sponsor's stake in Keppel Reit to 20 per cent from 46 per cent, as well as recent management changes.

RHB's target price of S$1.20 remains unchanged, implying an upside of 12 per cent from the counter's trading price of S$1.07 as at 11.30am on Wednesday. Keppel Reit's units were up 1.9 per cent or S$0.02 at the time.

In August, sponsor Keppel Corp proposed the acquisition of Singapore Press Holdings' (SPH) non-media business for S$2.20 billion, to be satisfied with S$1.08 billion in cash and the remainder in units of Keppel Reit.

"This has resulted in a likely near-term overhang for Keppel Reit as some of the SPH Reit unitholders who receive such units may sell in the open market," RHB said.

Keppel Reit's manager last week said chief executive Paul Tham will step down on Oct 20 to pursue other opportunities. Deputy CEO and head of investment Shirley Ng will be acting CEO while the manager's board evaluates potential replacements.

When it comes to distributions, RHB expects Keppel Reit's distribution per unit (DPU) to grow steadily at a compound annual growth rate of 3 per cent for FY2020-FY2024.

Despite the pandemic, the Reit's income profile has been improving since last year with H1 2021 DPU rising 5 per cent on the year. Portfolio occupancy remains healthy at 96.7 per cent, while rental reversions remain strong in the mid-to-high single digits - which RHB estimates will continue.

Moreover, RHB said Keppel Reit's sharpened focus on environmental, social and corporate governance, as well as high-quality, BCA green mark platinum Grade A assets ensure the Reit is well-positioned to ride the sustainability wave.