KepREIT – MayBank Kim Eng

Expect stable distributions

• FY13 results are in line with our and market expectations.
  
• No news on MBFC Tower 3 acquisition from sponsor; equity fund-raising remains on the horizon.
  
• Maintain HOLD. Forecast DPU CAGR of 0.8% over FY13-15E is unexciting in our view.
  

4Q13 – no surprises

KREIT’s FY13 revenue grew 11% YoY to SGD174m, constituting 97% of our and consensus estimates. We would attribute the increase to improved performance from Ocean Financial Centre and 77 King Street, as well as the additional income from the acquisition of 8 Exhibition Street in Melbourne. Full-year DPU rose 1.4% YoY to 7.88 SGD cents, meeting 99.6% of our and 98.5% of consensus forecasts. Portfolio occupancy strengthened from 99.4% in 3Q13 to 99.8% in 4Q13, with all Singapore properties fully leased. 8 Chifley Square officially opened on 29 Oct 2013, and is ~95% committed. The average cap rate for Singapore properties was maintained at 4%, while the average cap rate for Australian properties was 6.7%. The aggregate leverage improved from 43.9% in 3Q13 to 42.1% in 4Q13 on the back of SGD389m of property revaluation gains.

Uninspiring DPU growth prospects

We forecast DPU CAGR of 0.8% over FY13-15E since portfolio occupancy is almost full and lease expiry by net leasable area (NLA) is relatively long at 6.5 years. MBFC Tower 3 is more than 90% occupied, but KREIT said it has yet to approach its sponsor for acquisition. Nonetheless, the likelihood of more equity fund-raising remains on the horizon. KREIT has 3.4% and 6.4% of portfolio NLA due for lease expiry and rent review, respectively, in 2014. We expect a modest 1% rise in passing rents this year, given that CapitaGreen and South Beach Development will come on-stream in 4Q14. Maintain HOLD with the DDM-derived TP unchanged at SGD1.25.