Keppel REIT

UOBKayhian on 21 Jan 2014

FY14F DPU Yld (%): 6.9
FY15F DPU Yld (%): 6.3

Results in line with expectations. Keppel REIT (KREIT) reported a DPU of 1.97 cents/share (unchanged yoy and qoq) on full occupancy, completion of acquisitions and developments, and lower finance costs. This was partially offset by dilution from the placements of 40m shares in 1Q13 and 95m shares in 3Q13. Results were in line with expectations, with 2013 DPU representing 99.7% of our forecast.

Expected acquisition of MBFC in 2014, to be supported by asset sales to reduce the amount of equity fund raising required. With aggregate leverage at 42%, the acquisition of Keppel Land's one-third stake in Marina Bay Financial Centre (MBFC) Tower 3 will likely be completed with the divestment of two or more buildings (eg Prudential Tower, Bugis Junction and/or 77 King Street in Australia), and may be paired with equity fund raising of S$250m- 300m. Equity fund raising could be minimised if the buildings are sold at higher premiums to current valuations.

Maintain BUY and target price of S$1.46, based on DDM (required rate of return: 7.1%, terminal growth: 2.2%).