Keppel Reit

Keppel Reit (KREIT): KREIT launched a placement of 95m new units (3.5% of existing unit base) at issue price of $1.26/unit. Net proceeds of $119.7m will be used to part-fund the 50% stake for the Melbourne office at 8 Exhibition Street. This is the second placement done this year following the $53m placement in Feb with proceeds used to repay debt. This implies a leverage ratio of 38% and should cap KREIT’s gearing at around the 45% level (pro-forma 2Q gearing declines from 44.2% to 43.9%). Mgmt expects the acquisition to be DPU accretive. This lifts the near-term equity raising overhang, medium term earnings risk from the expiry of income support structures and its higher-than-peer gearing in a rising interest rate environment remain key concerns. DB maintain HOLD rating, with TP of $1.36. Counter currently trades at 6.1% FY13e yield and 1.0x P/B.