K-REIT

K-REIT: Good set of results which was in-line. NPI at $32.1m, +118.9% and +2.9% qoq, while DPU at 1.96c, +84.9% yoy and flat qoq. Result brings 9M11 DPU to 5.80c, +89.5% yoy and an annualized yield of 6.5% Distributable income for 3Q surged 87.7% yoy to $30.8m on the back of higher property and NPI. Add that the acquisition of an interest in OFC and higher occupancy rates of Prudential Tower and 77 King Street helped lift distributable income from $16.4m yoy. The 36.9% increase in share of results of associates was also attributed to positive rental reversions from ORQ and higher occupancy of MBFC Phase 1 which started contributing tax transparent income following the successful conversion of BFC Development , which holds MBFC Phase 1, into a Limited Liability Partnership holding structure on 15 Jun12. Going forward, mgt remains confident of maintaining the performance of its properties. Keppel REIT’s assets are nearly fully committed with leases with long tenures. Note that overall office market continues to show signs of stabilising as occupancy in the CBD increase and the rate of rental decline eased in 3Q12. The average occupancy in the core CBD increased from 91.6% in 2Q12 to 93.2% in 3Q12. We note that grp’s fundamentals remains strong, with grp’s WALE at 7.2yrs and average portfolio occupancy at 98.2%. Leverage ratio is a tad high at 44.1%, although this is mitigated by an interest coverage of 5.2x. At current price, grp trades at 1x P/B. Ratings as follow: CS maintains Neutral with $1.30 TP Deutsche maintains Hold with $1.20 TP Maybank-KE maintains Hold with $1.09 TP Nomura maintains Neutral with $1.16 TP CSLA maintains Sell with $1.00 TP Daiwa maintains O/p with $1.26 TP UOB Kay Hian upgrades to Buy with $1.36 TP