Keppel REIT a time-bomb waiting to explode?

Amid the current rally in the S-REIT sector, Keppel REIT is one of the rare counters that is majority-owned by Temasek Holdings (49%) and at the same time, an S-REIT that remained elusively laggard thus far. The current Price/Book value stood at 0.875, indicating that Keppel REIT unit price is trading at an undervalued level.

With a strong sponsor in Keppel Land and a solid backer in Temasek Holdings, Keppel REIT can be considered a blue chip among the S-REIT community. Total market capitalization is about $4.2 billion. So the poor form of Keppel REIT unit price, against the backdrop of a powerful rally in the S-REIT sector, must have left investors singing the blue. Then again, unitholders must count their blessings. After all, Keppel REIT’s net income consistently fell for the past five years. It is a miracle that the unit price had not suffered a meltdown.

Keppel REIT

In my opinion, there are a few factors that attributed to the current form of Keppel REIT unit price. However, the investment merits will be highlighted as well so as to provide a balanced view of this counter. Fundamentally, Keppel REIT is not a company in crisis but there is a need to be mindful of the dark side. Recent developments suggested that all may not be well for Keppel REIT as it recently sold several assets to raise $1 billion cash.

One particular financial metric looks disturbing to me and it is something that investors should be aware of. Again, investors should do their due diligence and thread with caution before entering this counter.

Keppel REIT a golden goose for Keppel Corp

For the past few years, Keppel Corp’s business had been affected by the oil slump and the dearth of oil rig orders. Therefore, Keppel REIT provides a form of recurring income to Keppel Corp as the latter holds 47% stake in the former. In FY2018, the distribution yield was 4.9%, representing a decent recurring return for the industrial conglomerate. With Keppel Land, there is also the possibility of recycling commercial offices into Keppel REIT and raising much needed capital in the process.

The major selling point of Keppel REIT is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: October 11, 2019 — 2:41 am

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