KepREIT – CIMB

Awaiting catalysts

KREIT’s 4Q13 DPU was inline with our estimates at27% of our FY13 forecast. Together with the previous 9M’snumbers, FY13’searnings came in at 100% of our full-year estimate. The higher revenue was mainly attributed to the newly-acquired office tower at8 Exhibition Street in Melbourne, and the improved performance of Ocean Financial Centre and 77 King Street. We maintain our Hold rating and keep unchanged our DDM-based (discount rate: 8.5%) target price of S$1.25 as we await more meaningful growth catalysts.

From strength to strength

Keppel REIT (KREIT) just announced its 4Q13 results, with revenue and DPU of S$47.5m (+16.4% yoy) and 1.97Scts (unchanged yoy) respectively. During the year, KREIT completed two acquisitions, namely Old Treasury Building in Perth and 8 Exhibition Street in Melbourne, refinanced all its loans due in 2013 and 2014, completed the construction of OFC Phase 2, and officially opened 8 Chifley Square in Sydney in the last quarter of the year. In 4Q13, occupancy for its Singapore portfolio rose to a respectable 100%, while its Australia portfolio enjoyed occupancy of 99.8%. In addition, gearing improved slightly to 42.1% on the back of a 10.4% yoy increase in AUM, mainly due to the addition of new buildings, and higher capital values in the portfolio.

Positive outlook on the office market

With Singapore’s Grade-A office market expected to perform better on the back of limited supply (0.8m sf a year in the next three years) and global recovery, we are positive on this segment of Singapore’s office market. In addition, with prime grade-A spot rent creeping up to S$9.75 psf/mth in 4Q13 (from S$9.55 psf/mth in 3Q13), we expect to see further positive rental reversions from the 9.7% of NLA (3.4% due for renewal and 6.3% due for rent review) due in FY14. Also, with the completion in 3Q13 of OFC Phase 2, additional income from this property should boost earnings by 0.7% in FY14.

Maintain Hold

Although the outlook for KREIT is positive, these factors have largely been factored into its share price. As such, we maintain our Hold rating and keep unchanged our DDM-based target price as we await more meaningful catalysts, like the potential acquisition of MBFC Tower 3, to come through.