HOLD; S$1.36; KREIT SP
Turning tables on Aussie pessimism
Price Target : 12-Month S$ 1.36 (Prev S$ 1.43)
•2Q results in line with expectations
•Refinanced loans, improved debt maturity profile
•Acquisition of 8 Exhibition Street in Melbourne to boost earnings further
•Maintain HOLD, TP S$1.36
2Q results in line with expectations. Keppel REIT reported a 6% rise in distributable income to S$52.8m (DPU of 1.97Scts, +1.5% y-o-y) on the back of a 3% increase in net property income to S$32.2m. The better performance was attributed to higher rental income from Ocean Financial Centre (OFC) (through an increase in its effective stake to 99.9%, improved tax transparency status) coupled with higher occupancy at 77 King Street, Sydney.
Share of associates also increased 49% y-o-y due to higher contribution from Marina Bay Financial Centre (MBFC) Phase 1 and One Raffles Quay (ORQ), benefitting from increased rental income from higher occupancy and positive rental reversions.
Refinanced loans, improved debt maturity profile. Keppel REIT also successfully refinanced borrowings due in 2014 amounting to S$425m (or 60% of expiring debt) and termed these out for 5 years, extending its weighted average debt expiry profile to 3.6 years.
Sustained strong portfolio performance. Operational performance continues to improve, with its Singapore properties averaging a high occupancy rate of 99.2% (vs 97.9% in 2Q12) while its Australian properties continue to show resilience sustaining a high occupancy rate of 98.8%. Looking ahead, we expect minimal earnings risks given that only c.2.5% of its income will be up for renewal for the rest of the year.
Acquisition of 8 Exhibition Street in Melbourne to boost earnings further. The anticipated completion of its acquisition of a 50% stake in 8 Exhibition Street for A$160.2m (cS$192.4m) is expected to contribute positively from 2H13. At an initial yield of c.6.5%, the acquisition is expected to be accretive to distributions. We have assumed in our forecasts an equity fund raising exercise of c.S$80m, keeping gearing at c.42% (within management’s comfortable range of 40-45%).
HOLD maintained, TP S$1.36. Our estimates are nudged up slightly to account for the above acquisition and fund raising assumptions. However, our TP is adjusted downwards from S$1.43 to S$1.36 as we raise our risk-free assumption (to 2.8%, from 1.8% previously).
Publish date: 16/07/13