Friday, August 30, 2013

Keppel REIT: Best Grade A office play (Macq)

Keppel REIT
Price (at 06:08, 28 Aug 2013 GMT) S$1.19
Valuation S$ 1.53
Best Grade A office play

Keppel REIT presented at Day Two of our Asean Conference in Singapore.

Singapore portfolio update. Keppel REIT sees broad-based demand in the office sector. Ocean Financial Centre (OFC) saw its occupancy rate increased further from 96.6% to 97.9% (with just half of the fifth floor left to lease). Major tenants at OFC will see rent reviews in 2015 (BNP) and ANZ (2016). As these leases were signed at low rates during the GFC, Keppel REIT expects positive rent uplift post review. Singapore portfolio occupancy rate is at 99.2% and Singapore accounts for circa 90% of assets.

Australian exposure at 10% of assets. This follows the recent acquisition of 8 Exhibition Street in Melbourne for A$160m. This will rise to 12% of assets once the Perth development is completed. Keppel REIT owns 5 office assets in four cities, all on long-term leases with annual rent escalations. 8 Chifley Square in Sydney is expected to be completed in Oct 2013 and precommitments reached 70%. The group hedges its income but not the equity.

Gearing of 43.9% post recent placement. Keppel REIT has one of the highest gearing in the sector but interest cover is high at 4.8x. In the event of a major acquisition, the group may look to divest some older assets to part fund the acquisition over and above some equity and debt issuance.

Earnings and target price revision
No changes to DPU estimates or TP.

Price catalyst
12-month price target: S$1.53 based on a DCF methodology.
Catalyst: Office rent recovery in 2H13 and into 2014.

Action and recommendation
KREIT offers the best Grade A office exposure in Singapore. It is trading on 0.94x P/BV and offers a yield of 6.3% in FY14.

Source/Extract/Excerpts/来源/转贴/摘录: Macquarie-Research,
Publish date: 27/08/13

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