Keppel REIT: (S$1.07) 2Q16 DPU in line but supply headwinds loom
-2Q16 results met expectations even though DPU fell to 1.61¢ (-6.4%) as distributable income dropped 4.2% to $52.5m (including capital top-up).
-Revenue and NPI slipped to $40.6m (-5.6%) and $32.5m (-6.5%) respectively, due to the divestment of 77 King Street in Sydney earlier in the year.
-Occupancy was healthy at 99.7% (+30 bps q/q) with weighted average lease to expiry of 6 years. Aggregate leverage was stable at 39% with average cost of debt at 2.55% (-3 bps q/q)
-Management has proactively engaged tenants to renew leases expiring in 2017-18. Lease expiry profile is now 0.6%/ 9.5%/5.5% for 2H16/ FY17/ FY18.
-Broadly, Maybank KE advises investors not to chase the yield-driven rally before the office supply cycle peaks out in 2017/18.
-Keppel REIT is currently trading at 6% annualised 2Q16 yield and 0.75x P/B.
-Maybank KE maintains Hold, raises TP to $1.05 from $0.97