Strong start to FY22
? 1Q22 distributable income from operations was in line at 24.7% of our FY22F
forecast.
? Portfolio occupancy likely to improve in coming quarters; 1Q22 rental
reversion came in at a healthy +7.9%.
? Reiterate Add rating with an unchanged DDM-based TP of S$1.29
1Q22 business update
In its 1Q22 business update, KREIT reported gross revenue of S$54.5m, +6.7% yoy, while
distributable income from operations grew 4.3% yoy to S$53.8m. 1Q revenue and
distributable income from operations are broadly within expectations, at 26%/24.7% of our
FY22F forecast. The improvement was due to contributions from Keppel Bay Tower (KBT)
in May 21, partly offset by the divestment of 275 George St in Jul 21.
Rental reversion strengthened in 1Q
Portfolio committed occupancy slipped slightly qoq to 95.1% at end-1Q. With another 1.9%
of portfolio NLA under various stages of lease documentation, we believe portfolio
committed occupancy is likely to trend up in coming quarters. KREIT renewed/leased 475k
sqft of space in 1Q22 at an average rental uplift of about +7.9%. An estimated 81% of
leasing activities were renewals. New leasing demand came from real estate,
manufacturing and distribution, financial services and consultancy sectors. As at end1Q22, KREIT had 9.3% of leases to be renewed in 9MFY22F and a further 13.9% in
FY23F. Expiring rents for FY22F averaged S$10.10psf and S$10.84psf in FY23F.
Management raised its rental reversion guidance for FY22F to positive high single-digits
(from low- to mid-single digits previously). In terms of rental waivers, KREIT granted
c.S$0.2m of rental reliefs for 1Q22 while rental collection remained at a healthy 99%.
Meanwhile, KREIT guided that the impact of higher utilities rates is mitigated in the near
term as in-place energy contracts are due for renewal only by end-2022 to 2024.
Robust balance sheet
KREIT’s aggregate leverage stands at 38.7% as at end-1Q22 with average all-in interest
cost of 1.81%. An estimated 71% of its debt are on fixed rates. About 48% of its total debt
are green loans. In Apr 2022, S$146.5m of KREIT’s convertible bonds due 2024, was
redeemed and was funded through loan facilities, maturing in 2026-2027. Furthermore,
management guided that a 50bp hike in funding cost could erode its DPU by 0.14 Scts (or
c.2.4% of FY21 DPU). With its strong balance sheet, we believe KREIT is in a strong
position to continue to evaluate accretive inorganic growth opportunities, particularly in
Australia and Singapore.
Reiterate Add rating
We leave our FY21-23F DPU estimates unchanged and retain our DDM-based TP of
S$1.29. Potential catalysts include the redeployment of divestment proceeds to new
accretive acquisitions and a better-than-projected office rental market, while downside
risks include longer-than-expected frictional vacancy from tenant movements due to a
slower-than-expected backfilling of office space.