KREIT

KREIT: Investors from HSBC’s roadshow were positive on KREIT’s asset quality and performance, but had concerns on potential impact of higher interest rates and Singapore office outlook in general. KREIT has a gearing ratio of 44%. However, the house notes that 70% of KREIT’s debt is fixed for 3 years and average debt term to maturity is one of the highest in the sector at close to 4 years. HSBC estimates that every 100bps increase in interest rates would cause DPU to decline by 3% in the short to medium term. On outlook on Singaproe office, KREIT has seen positive rental reversions for expiring leases in 2H13 on the improving outlook over the past 6 months. Management expects that the lower level of supply in CBD in 2014 – 2015 will strengthen landlord’s pricing power. Investors were also interested in the acquisition prospect of MBFC Tower 3 (30% owned by Keppel Land, >90% committed) in 2014. But given KREIT’s gearing of 44%, further acquisitions will likely require equity fund raising and/or capital recycling via asset divestments. HSBC remains Neutral on KREIT despite having 6.9% yield (highest among office REIT peers) as DPU growth is expected to be subdued through 2015 as income support for various properties declines/ceases. TP: $1.25