Wednesday, September 4, 2013

Keppel REIT : More Compelling Valuations For The Best Office Portfolio In Singapore (UOBKH)

Keppel REIT
Share Price S$1.21
Target Price S$1.46
More Compelling Valuations For The Best Office Portfolio In Singapore

Valuations of KREIT are more compelling as it offers a 40bp premium to the average 6.2% yield for office REITs. Equity overhang from a private placement and Keppel Corp’s distribution in-specie is largely removed. KREIT offers the highest-quality Singapore office portfolio and will benefit from the improving office outlook. Upgrade to BUY (from HOLD) with an unchanged target price of S$1.46.


What’s New
• Valuations are now more compelling as Keppel REIT (KREIT) offers a yield of 6.6%, 40bp over the average 6.2% yield for office S-REITs. With physical office transactions at 3-3.5% cap rates, office REITs offer better value for investors to gain exposure to economic growth and improvements in office rentals.

• Private placement removes equity overhang. Its recent private placement (completed on 6 August) of 95m new units at S$1.26 per unit raised gross S$120m (S$118m after fees). The proceeds were used to fund the S$192m acquisition of 8 Exhibition Street in Melbourne, Australia, and remove the near-term equity overhang following the recent acquisition.

• Australia office properties still resilient. Mirvac and KREIT recently announced that 8 Chifley Square in Sydney is 70% pre-committed ahead of its completion in Oct 13. This is 14ppt up from Apr 13’s (56% pre-committed) and reflects positive leasing sentiment for high-quality office space despite slowing economic growth due to a moderation in commodity prices. The new tenant, data analytics firm Quantium, joins other tenants including law firm Corrs Chambers Westgarth and insurance leader QBE Insurance Group, at 8 Chifley. Occupancies and pre-commitments for the other Australia properties (275 George Street, 77 King Street and Old Treasury Building) in KREIT’s portfolio are all above 97%.

Stock Impact
• Highest-quality Singapore-centric portfolio. About 90% of KREIT’s portfolio by valuation is centred in Singapore, despite recent acquisitions in Australia. Among office REITs, KREIT has the highestquality office portfolio with over 92% of its Singapore portfolio located in the Raffles Place and Marina Bay precincts.

Stock Impact
• Divestments by Keppel Corp coming to an end. Following the latest distribution-in-specie of 8 KREIT units for every 100 Keppel Corp shares, we estimate Keppel Corp has pared down its stake to a mere 0.1% (~3.7m shares). Keppel Land remains a substantial shareholder, with a 46% stake in KREIT. Although there could still be some near-term weakness when Keppel Corp’s shareholders receive their KREIT units on 13 September, the previous distribution-in-specie on 8 May marked a 6.8% one-week rally in the share price as new unitholders did not divest of their KREIT units. We view any near-term weakness as a good opportunity to accumulate KREIT.

• We expect Grade-A office rentals to rise 8% yoy in 2014 after bottoming in 2013. Office rentals in 2Q13 remained unchanged qoq at S$9.55psf pm, slowing from the average 3.4% quarterly decline in 2012. We expect office demand to rebound to 2.1m sf p.a. in 2013-17, while demolitions could remove over 60% of upcoming supply over the next two years.

• Acquisition of MBFC Tower 3 by 2014 could be supported by asset sales. As MBFC Tower 3 achieves close to 80% occupancy, and following the positive leasing momentum for OFC, we believe MBFC  Tower 3 will be leased by end-13. Any acquisition could be supported through asset divestments, potentially strata-office units in Prudential Tower, as demand for strata-office space remains buoyant. Space at Prudential Tower is valued at S$2,200psf, while strata units at Suntec
City are transacting at S$2,750psf.

Earnings Revision/Risk
• None. Key risks remain the relatively high gearing of 44% post equity und raising and the acquisition of 8 Exhibition Street, although further equity fund raising will likely be paired with acquisitions.

Valuation/Recommendation
• We upgrade the stock to a BUY (from HOLD) with an unchanged target price of S$1.46, based on dividend discount model (required rate ofreturn: 7.1%, terminal growth: 2.2%).

Share Price Catalyst
• Higher office rentals.
• Positive newsflow on leasing activity, employment and economic growth.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 03/09/13

No comments:

Post a Comment

Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)
“错过时机”胜于“搞错对象”:不会全军覆没!”
做自己熟悉的事,等到发现大好机会才投钱下去

乔治·索罗斯(George Soros)

“犯错误并没有什么好羞耻的,只有知错不改才是耻辱。”

如果操作过量,即使对市场判断正确,仍会一败涂地。

李驰(中国巴菲特)
高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo


There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
冷眼(冯时能)投资概念
“买股票就是买公司的股份,买股份就是与陌生人合股做生意”。
合股做生意,则公司股份的业绩高于一切,而股票的价值决定于盈利。
价值是本,价格是末,故公司比股市重要百倍。
曹仁超-香港股神/港股明灯
1.有智慧,不如趁势
2.止损不止盈
成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
曾淵滄-散户明灯
每逢灾难就是机会,而是在灾难发生时贱价买股票,然后放在一边,耐性地等灾难结束
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock