Tuesday, 22 April 2014

Keppel Reit

Kim Eng on 15 Apr 2014

  • 1Q14 results in line with our and market expectations.
  • No news of MBFC Tower 3 acquisition from sponsor; equity fund-raising remains on the horizon.
  • 1Q14 DPU flat YoY at 1.97 cts. Expect flat DPU CAGR over FY13-18E on income support expiry and marginal passing rents improvement.
What’s New
KREIT posted a 12.9% YoY rise in 1Q14 revenue to SGD46.8m, meeting 25% of our and 24% of consensus estimates. The increase came on the back of improved performance from Ocean Financial Centre and Prudential Tower in Singapore and additional income from 8 Exhibition Street in Melbourne, which was acquired last August. 1Q14 DPU remained flat YoY at 1.97 cts, forming 25% of our and consensus forecast. Portfolio occupancy rate was flat at 99.8% in Singapore with all properties fully leased, but rose to 97% from 95% in Sydney with 8 Chifley Square signing on its latest tenant Natixis. Opened last October, it has only half a floor remaining to be leased. Aggregate leverage for KREIT edged up slightly from 42.1% in 4Q13 to 42.4% in 1Q14.

What’s Our View
MBFC Tower 3 is 95% occupied to date, but KREIT has yet to announce any acquisition plans from its sponsor. We believe more equity fund-raising is still on the cards, with the possibility of capital recycling Prudential Tower (valued at SGD490m as at 31 Dec 2013) to fund a portion of the hefty acquisition cost estimated at SGD1.1-1.3b. KREIT has, respectively, 3.1% and 6.3% of its portfolio NLA due for lease expiry and rent review this year. We expect marginal improvements in passing rents, with CapitaGreen and South Beach Development due to come on-stream in 4Q14. We forecast flat DPU CAGR over FY13E-18E with the progressive expiry of income support. Maintain HOLD with an unchanged DDM-derived TP of SGD1.25.

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