Keppel REIT: (S$1.21) Concerns largely priced in
Maybank-KE hosted Keppel REIT on a recent non-deal roadshow, where investors were mainly focused on three main issues, particularly:
i) Surge in office supply in 2016/17;
ii) Expiry of income support at Ocean Financial Centre (OFC);
iii) Gearing and fund-raising due to aggregate leverage of 43.3%.
These concerns were alleviated, with management supporting the upcoming supply surge to be negated over the next five years, as completions in 2018-2019 is expected to be low.
While income support at OFC is expiring, recent renewals saw 10-20% rental reversions, as existing rents were signed during the GFC low. A third of the contracts will be up for renewal each year till 2017.
On its high leverage, management sees no acquisitions on the horizon, hence no need to raise equity. In addition, Keppel REIT cited its option to divest Bugis Junction Towers, if it requires money.
At the current share price, Maybank-KE believes that investors' concerns have been priced, with FY15E distribution yield at 5.7%.
House has a Buy rating with TP of $1.32.
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