KEPPEL REIT
K71U.SI
Keppel REIT - Occupancy Rates Decline
- Keppel REIT’s 9M15 DPU met ~73% of our full-year estimate, at 10.5% lower than the year before. Maintain SELL, with a TP of SGD0.86 (14% downside).
- Its overall portfolio occupancy rate dipped to 98.5%, mainly due to the closure of SCB’s equity business in MBFC Tower 1.
- We kept our SELL rating, as Keppel REIT is still one of the highest-geared REITs within the sector (42.6%), while it grapples with headwinds in the office rental market.
3Q15/9M15 DPU declines 8.1/10.5% YoY.
- Keppel REIT’s 9M15 results were in line with our expectation as 9M15 distribution per unit (DPU) declined 10.5% YoY, meeting ~73% of our full-year estimate. The REIT achieved an average 16% positive rental reversion for 9M15 (1H15: 18%). The decline in DPU was mainly attributable to the divestment of Prudential Tower on 26 Sep 2014.
Occupancy dropped mainly due to closure of Standard Chartered Bank’s (SCB) equity business.
- Recall that SCB announced that it was shutting down its equities business in January. The bank returned the space in Marina Bay Financial Centre (MBFC) Tower 1 to the REIT in the last quarter, which caused its portfolio occupancy rate to dip to 98.5% from 99.3%. We learnt from management that there will not be any further decline in occupancy rates relating to the closure of SCB’s equity business.
Impacted by the weakening AUD.
- The REIT’s Australian assets with direct rentals registered a negative 9M15 revenue YoY growth of 7.7- 8.2% following the weakening of the AUD. Keppel REIT stated that it has hedged almost 100% distributable income from Australia for the remainder of 2015. Its sensitivity analysis stated that its NAV would drop by 2 cents and gearing could rise by 0.3%, should AUD1.00 trade at SGD0.95 (currently AUD1.00 = SGD1.01).
Maintain SELL.
- Since we expect further headwinds in the office rental market in the coming years, we remain cautious as 28.4% of its portfolio NLA faces lease expiries in the next two years. We reiterate our SELL recommendation, while our DDM-based SGD0.86 TP remains unchanged.
Ivan Looi
RHB Securities
|
Ong Kian Lin
RHB Securities
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http://www.rhbgroub.com/
2015-10-19
RHB Securities
SGX Stock
Analyst Report
0.86
Same
0.86
