KepREIT – DBSV

Continues to deliver

• Results within expectations
  
• Resilient portfolio underpinned by long leases and strong income visibility
  
• Maintain HOLD, TP raised slightly to S$1.43
  

Highlights

Results in line with projections. Keppel REIT reported a 13% y-o-y increase in property income to S$41.4m in 1Q13 while NPI rose a better 21% to S$34.4m. The higher jump in the latter is due to the better performance at OFC as well as increased contributions from 77 King St. Portfolio occupancy rose to 98.8%. Distributable income was 7.6% better y-o-y at S$52.2m (DPU 1.97Scts), eroded marginally by higher borrowing costs. Effective interest rate was 2.17% vs 2.03% a year ago.

Our View

Stable portfolio supported by long leases, medium term growth from completion of non-speculative developments.

Looking ahead, all of its Singapore assets continued to enjoy robust occupancy and there is only a remaining 3.5% of NLA to be renewed and another 3% to undergo rent review this year. With a smaller anticipated supply of new space in the CBD this year, we believe occupancy should remain relatively high and newer buildings should experience lesser pressure on rent rates compared to older buildings. This should mitigate any leasing risk. The expected completion of the OFC retail and carpark podium by 3Q13 should also boost bottomline. Meanwhile, in Australia, earnings should be driven by additional contribution from Old Treasury Building in Perth in the medium term and completion of 8 Chifley Square in 2H13. The latter is 56% pre-committed to date. Recent refinancing exercise also extended the trust’s debt maturity profile to 3.2 years.

Recommendation

Maintain Hold. We continue to like Keppel Reit for its stable and resilient cashflow that is underpinned by a long WALE, which currently stands at 5.7 years. However, share price has outperformed and the stock is trading just 1% below our TP of S$1.43. Hence, maintain HOLD call. At the current level, the trust offers a potential total return of 7%.

16 Apr 2013

Singapore Result Snapshot

Keppel REIT

Bloomberg: KREIT SP | Reuters: KASA.SI Refer to important disclosures at the end of this report