Keppel REIT - UOB Kay Hian 2017-04-20: 1Q17 Results In Line

REITs − Singapore - UOB Kay Hian 2017-04-20: 1Q17: Results Of CCT (In line) and KREIT (In line) KEPPEL REIT K71U.SI

REITs − Singapore - 1Q17: Results Of CCT (In line) and KREIT (In line)

  • KREIT’s results are in line with expectations. 
  • It saw negative rental reversion of 1%, though leasing rollover risk remains low. 
  • Maintain BUY on KREIT with a reduced target price of S$1.18. 
  • Maintain OVERWEIGHT on the sector.



WHAT’S NEW


  • Keppel REIT (KREIT) has reported the quarterly results.



ACTION 


Results in line with expectations, maintain BUY with a lower target price of S$1.18 (previously S$1.21) based on DDM (required rate of return: 6.7%, terminal growth: 1.4%). 

  • Keppel REIT reported 1Q17 DPU of 1.45 S cents, -13.7% yoy. 
  • 1Q17 gross revenue and net property income fell 3.2% yoy and 4.6 % yoy respectively on lower contributions from Bugis Junction Towers and divestment of 77 King Street. 
  • Income contribution from associates was up 23.2% yoy due to S$2.8m in pre-termination fees from leases at One Raffles Quay and MBFC (vacancies mostly backfilled). The results came in line with expectations, with 1Q17 DPU representing 22.9% of full-year forecast.
  • We have reduced our 2017-18 DPU estimates by 1.6% to 1.8%, factoring in a further 5% drop in 2017 spot rents to take into account the negative rental reversion of 1% in the quarter (Average passing rents due in 2017 and 2018 range in the low S$9 psf, compared with the current Grade-A rentals of S$8.95 psf pm).

Replacement of chairman and board members. 

  • After over 12 years of service, Chairman Chin Wei-Li has resigned from her position on the board and will be replaced by non-executive and independent director Mrs Penny Goh (with effect from 22 Apr). Two other board members will also be relinquishing their positions.

Pro-active leasing strategy, leaving a mere 2.8% and 6.9% by NLA remaining in 2017 and 2018 respectively. 

  • These would minimise tenant flight risk during the next wave of commercial supply expected in 2017, from Marina One (1.9m sf in 2Q17). 
  • We understand from management that the bulk of these expiring leases are in their first renewal cycles and are thus likely to be renewed.

Cautious optimism from management, especially on tapering forward office supply, and healthy pre-commitment at Marina One. 

  • Management highlighted industry consultant CBRE’s observation of increased leasing demand from tenants in banking and finance, as well as the technology and media sector.




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-20
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.18 Down 1.210



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