Price Target : 12-Month S$1.23 (Prev S$1.19)
• 3Q13 DPU of 1.97 Scts in line
• Robust occupancy levels with minimal refinancing risks in coming financial year
• HOLD with revised TP of S$1.23
3Q results in line with expectations. Keppel REIT (K-REIT) reported a 5% rise in distributable income to S$54.1m (DPU of 1.97 Scts, +0.5% y-o-y), on the back of a 7% increase in net property income to S$34.3m.
The better performance was attributed to higher rental income from Ocean Financial Centre (OFC) and the maiden contribution from 8 Exhibition Street in Melbourne. Share of associates also increased 26% y-o-y, due to higher contributions from Marina Bay Financial Centre (MBFC) Phase 1 and One Raffles Quay (ORQ). The associates enjoyed increased rental income from higher occupancy and positive rental reversions, while the conversion of MBFC Phase 1 to a Limited Liability Partnership ("LLP") resulted in higher tax transparency. For 9M13, K-REIT reported a DPU of 5.8 Scts, forming 75% of our FY13F estimates. Gearing remains steady at 43.5%.
Sustained strong portfolio performance. Portfolio occupancies remained resilient - Singapore properties achieved a high of 99.5%, while a slight dip in occupancy at 77 King Street (from 97% to 95%) is likely to be frictional and should see subsequent improvement. Supported by a long WALE of 8.3 years and only c.4.6% of income up for renewal in the next two years, we see minimal downside risks to earnings.
Steady income growth supported by portfolio expansion. Rent review accounting to c.6.4% of NLA in 2014 (largely coming from MBFC) is likely to see positive reversions, given low expiring rents. In addition, growth is further underpinned by inorganic growth initiatives from the completion of the construction of OFC Phase 2, 8 Chifley Square in Sydney and the acquisition of 8 exhibition street. Improved debt maturity profile. K-REIT early refinanced S$282m worth of debt due in 2014, S$60m due in 2015, extending its weighted debt from 3.6 to 3.8 years. Interest costs remain fairly low at 2.15%, with 70% of total debt hedged into fixed-rate loans. After this, K-REIT will have no loans up for renewal till the end of 2014.
HOLD maintained, TP S$1.23. Our TP is adjusted to S$1.23 as we roll forward our estimates. While stock offers an attractive FY13-15F yield of 6.4%-6.5%, given limited upside to our TP, we maintain our HOLD rating.
Publish date: 16/10/13