Why analysts think that Keppel is the most undervalued office REIT

Has it been underestimated?

According to OSK DMG, they expect KREIT shares to re-rate over the medium-term, as its portfolio will likely benefit from Singapore’s low incoming supply of new commercial assets and its high-yielding Australian assets.

With a weighted average lease to expiry (WALE) of 6.6 years and long term lease (>five years) accounting for 40% of its portfolio, coupled with revenue hedge for its Australian exposure, KREIT’s earnings downside risks appear limited.

Here's more from OSK DMG:

The restructuring of Keppel Group’s holdings and its subsequent stake reduction in KREIT has helped improved the latter’s liquidity, with its estimated free float now at 46% (below 25% during its initial years). Not only does this allow greater investor participation, but it also enables greater capital flexibility for potential acquisitions.

Amidst the volatility in the capital markets since May – whereby the STI index fell 7% and the FSSTREIT index dropped 17.8% – KREIT suffered a 23.6% correction. We see this as overdone, as it implies an 88% decline in KREIT’s forward rental cycle, coupled with a 25% correction in the AUD, all of which points to an overreaction. Hence, we see an excellent opportunity to accumulate a great value REIT with substantial upside.

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