Share price: SGD1.165
Target price: SGD1.25 (from SGD1.15)
Expect Stable Distributions
FY14 to be slightly better. Keppel REIT (K-REIT) has 3.4% and 6.4% of portfolio NLA due for lease expiry and rent review, respectively. We expect marginal improvement in passing rents and occupancies in 2014, given that the next major Grade A office developments (CapitaGreen and South Beach Development) will come on-stream only in 4Q14.
Australian acquisition completed in August. On 26 Jun 2013, K-REIT announced the acquisition of a 50% interest in a premium freehold Grade A office building at 8 Exhibition Street in Melbourne, Australia. The acquisition, which was completed on 1 August, was immediately DPU-accretive and adds to K-REIT’s existing sterling portfolio of commercial assets in Singapore and in key cities of Australia. 8 Exhibition Street is 100% leased to well-established tenants in the financial, aviation, financial advisory, tax and transaction services sectors.
Sound balance sheet. In Aug 2013, Moody’s upgraded K-REIT’s rating by one notch to Baa2 with a stable outlook. K-REIT also completed the early refinancing of a further SGD282m in 3Q13. This means that 100% of the borrowings that would have been due in 2014 have been termed out till 2019. The weighted average term to expiry of borrowings was extended from 3.6 years to 3.8 years, with all-in interest rate of 2.15% and a healthy interest coverage ratio of 5.6x.
MBFC Tower 3 acquisition on the horizon. We estimate that the commitment rate at MBFC Tower 3 currently stands at 90%, if not slightly more. This effectively makes the property ripe for K-REIT to acquire. We believe the probability of K-REIT going to the market in 2014 to raise substantial equity to fund the approximately SGD1.1b acquisition is high, considering its high gearing of 43.9%.
Maintain HOLD. We forecast DPU CAGR of 0.6% over FY13F-15F. The likelihood of more equity fund-raising in the future remains on the horizon. Maintain HOLD with the TP raised to SGD1.25.
Publish date: 06/12/13