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REIT 4Q18 Report Card: 3 REITs That Investors Will Rue Missing Out On

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Here are three REITs that had delivered a strong 4Q18 that investors will rue missing out on them.

Investors Takeaway: 3 REITs That Investors Will Rue Missing Out On

  1. Keppel DC REIT

Keppel DC REIT made a strong end to FY18 with a gross rental income growth of 26.2 percent year-on-year. The boost in gross rental income came largely from recent acquisitions of maincubes Data Centre, KDC Singapore 5 and KDC Dublin 2. Overall, Keppel DC REIT’s net property income rose by 24.6 percent with 4Q18 delivering on both revenue (30.5 percent) and net property income (30.1 percent).

Moving forward, Keppel DC REIT remains one of the few REITs in Singapore capable of making accretive acquisitions, supported by a low cost of capital. Acquisitions are expected to deliver a solid 3-5 percent growth in DPU. The manager is reviewing opportunities in both new and existing markets as the REIT looks to bulk up and grow its distributions and assets under management. The manager’s target in the longer term is to have 50 percent of its assets derived from assets within the Asia Pacific region.

BUY, TP $1.60, REIT Report Card Rating: A

  1. Keppel REIT

Keppel REIT finished 2018 with a positive rental reversion of 12.9 percent. In total, Keppel REIT completed 130 committed leases with tenant retention of 83 percent. In the year, the management managed to renew expiring leases with an average signing rent of $11.10 psf. Importantly, one of Keppel REIT’s key customer signed a 10-year lease with two 5-year extension options for 140,000sf of Grade A office space at MBFC Tower 2. Moving forward, UOBKH foresees Keppel REIT to benefit from a fill year impact of higher rent.

Keppel REIT has been keeping a keen eye on the Australian market for acquisitions to scale its Australia portfolio. According to UOBKH, Keppel REIT is also evaluating expansion into a third developed country within the Asia Pacific region that offers stable growth.

To help investors unlock value, Keppel REIT is looking at renewing its mandate for share buyback at the upcoming April AGM. This is driven by the management’s belief that Keppel REIT is currently undervalued.

BUY, TP $1.35, REIT Report Card Rating: A-

  1. Parkway Life REIT

In late 2018, Mitsui & Co. acquired a 16 percent stake in IHH from Khazanah Nasional, raising its stake in IHH to 33 percent. This is part of Mitsui’s intention to target healthcare as a growth area in the medium term. Mitsui has pledged to support IHH’s geographical and business expansion into India and China. With Mitsui as the largest shareholder of IHH, UOBKH notes that there could be synergy from future collaborations between IHH and Parkway Life REIT.

Besides that, IHH’s acquisition of a 31 percent stake in Fortis Healthcare could mean that it needs more capex to support expansion into India. IHH could be looking at raising funds by divesting its 14 hospitals in Malaysia. UOBKH highlights that Parkway Life REIT will be in prime position to acquire the scarce and tightly held healthcare assets from IHH. Apart from acquisitions from IHH, Parkway Life REIT is also looking at opportunities to acquire in developed and mature markets where there are many profitable hospital operators. Malaysia and Australia are two such markets that the management has identified for expansion opportunities.

BUY, TP $3.25, REIT Report Card Rating: A-

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REIT 4Q18 Report Card: 4 REITs/ Investment Trusts That Let Down

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