Thursday, December 26, 2013

Keppel REIT -REIT That Offers Grade-A Offices At a Bargain (DMG)

Keppel REIT
Target Price: SGD1.66
Price: SGD1.16
REIT That Offers Grade-A Offices At a Bargain

KREIT’s latest Australian acquisition (Melbourne) reinforces management’s progressiveness in extending its portfolio’s revenue tenure with fixed annual rental escalation and high portfolio occupancy. Besides its Grade-A offices, we see the lengthening of its portfolio’s WALE further mitigating the specific risks associated with commercial landlords. Maintain BUY, on the stock’s high 7.4% DPU yield.

¨ Strong income stream. With a weighted average lease to expiry (WALE) of 6.4 years and long-term leases (>five years) accounting for 40% of its portfolio, coupled with a revenue hedge for its Australian exposure, KREIT’s earnings downside risks appear limited.

¨ Boosting stock liquidity and acquisition currency. The restructuring of Keppel group’s holdings and the subsequent reduction in its stake in KREIT has helped to boost the latter’s liquidity, with its estimated free float now at 55.3% (vs below 25% during its initial years). This not only
opens the door to greater investor participation but also provides the company with greater capital flexibility to make potential acquisitions.

¨ Recent share price plunge an overreaction. Amidst the volatility in the capital markets since May – whereby the STI index has lost 10% while the FSSTREIT index has slumped 21% – KREIT’s unit price has fallen by 28%. Assuming a 100bps increase in interest cost, this will reduce its  prospective distribution per unit (DPU) by less than 4%, which implies that the market is pricing in an over 90% decline in KREIT’s forward rental cycle. We hold the view that this, coupled with a 25% correction in the AUD, amounts to an overreaction. Hence, we see an excellent opportunity to accumulate a great value REIT with substantial upside.

¨ SGD1.66 TP provides 35% upside potential. KREIT is currently trading at a compelling 7.4% FY14F yield and a substantial 15% discount to the peer average of 6.2%, despite having only premium Grade-A office assets in Singapore’s central business district (CBD). Maintain BUY on the stock with a SGD1.66 TP, which provides a potential upside of 43%.

Source/Extract/Excerpts/来源/转贴/摘录: DMG-Research,
Publish date: 23/12/13

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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
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乔治·索罗斯(George Soros)



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,
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