• Reiterate BUY, SGD1.05 TP implies 23% upside with 6% FY25F yield. Keppel REIT's FY24 results are in line. Key positives: Stronger QoQ double-digit rent reversion growth, and higher occupancy rates for overseas assets. KREIT's new CEO Chua Hsien Yang recently took the helm and we believe this may lead to more active capital recycling and M&A activities. The stock is trading at a >30% discount to BV, which is unjustified - given the healthy demand-supply outlook for Grade-A office assets.
• Portfolio rent reversion rose to 16.5% in 4Q24 from +10.2% in 9M24 as KREIT backfilled >50% of space given back by its key tenant at Ocean Finance Centre, at higher rental rates. It is also in active discussions for the remaining space. The occupancy rate of 2 Blue Street rose to 92.1% (3Q24: 77.7%) as it secured a new tenant, Alstorm. Looking ahead, some tenant movements are expected at Marina Bay Financial Centre and T-Tower, Seoul but management remains confident of backfilling the spaces, as direct new supply is limited. KREIT guided for a mid- to-high single-digital rent reversion for FY25, but we see room for an outperformance as the return-to-office trend continues to strengthen amid a persistent flight to quality.
• Proactive asset management is likely the key short-term focus with asset enhancements at One Raffles Quay nearing completion, with the addition of two new F&B outlets. In terms of divestments, T-Tower remains a potential candidate in the medium term post its ongoing rejuventation in the area, which is likely to result in an office stock reduction. KREIT's gearing stands at 41.2% which management is comfortable with.
• 2H24/FY24 DPU declined 3.4% YoY as NPI growth was offset by higher borrowing costs (+34% YoY). Moving forward, KREIT guided that 25% of management fees will be paid in cash vs100% in units currently, to minimise long-term NAV dilution. This will negatively impact DPU. Its portfolio valuation declined marginally (0.2% YoY) as modest gains in Singapore (+1%) were offset by losses from cap rate expansion in Australia (-4% in SGD terms) and North Asia (-4%). We expect modest gains in valuation for FY25.
• KREIT has SGD300m of perpetual securities (perps) with a fixed coupon rate of 3.15% pa, that is due for an interest rate reset in Sep 2025. We expect KREIT to potentially replace it with new perps at a 4% pa rate. Financing costs rose slightly QoQ (+2bps) to 3.4% pa and we expect it to peak at 3.5-3.6% this year, taking into account 23% of debt refinancing due this year.
• We trim FY25-26F DPU by 5% and 4%, due mainly to the payment of part management fees in cash and assuming a higher coupon rate for perps due in Sep 2025. We have introduced FY27 forecasts in this report, and roll forward our DDM model. Our TP includes a 2% ESG premium.

Source: RHB Research - 3 Feb 2025