Keppel REIT

Keppel REIT: 4Q13 distributable income was $54.9m (+6%y/y), while DPU remained flat y/y at 1.97¢, translating to a 6.6% yield. NPI rose 13.9% y/y to $37.4m due to better performance from Ocean Financial Center plus the acquisition of 8 Exhibition Street. All 5 Singapore properties within the portfolio had 100% occupancy while overall committed portfolio occupancy increased 1.3% y/y to 99.8% According to Deutsche, KREIT’s portfolio was revalued up by ~7% ($389m) on stable cap rates of 4% for Singapore, reflecting Grade A values of $2,800psf NLA, and slightly tighter cap rates of 6.7% for Australia. As a result, gearing fell from 43.9% to 42.1%. Nontheless, MKE reckons the likelihood of more equity fund-raising in the future remains on the horizon. Strong WALE of 6.5 years + heavy income support should help underpin 2014 earnings stability. Deutsche forecasts FY14 DPU of 7.54cts (-4% y/y) as income support for MBFC fades. That said, the street adopts a view that sustainability of dividends is a risk in 2015 as income support structures unwind. On the acquisition front, Nomura highlighted that with regard to MBFC Tower 3, management stated that they may approach sponsor Keppel Land year to discuss a potential acquisition of its one third stake and that the divestment of existing assets could help to fund such an acquisition. Meanwhile, 8 Chifley Square officially opened on 29 Oct 2013, and is ~95% committed. CIMB’s take on the above is that while KREIT’s outlook is positive, it has also been reflected in share price NAV stood at $1.40 as at end Dec, P/B stands at about 0.8x. Latest broker ratings as follows: Maybank KE: Hold, TP $1.25 HSBC: Neutral, TP $1.20 Deutsche: Hold, TP $1.28 CIMB: Hold, TP: $ 1.25