Standard Chartered
Free float could potentially double to SGD 2.2bn: We
estimate KREIT‟s free float will rise to SGD 1.7bn on 8 May,
when Keppel Corporation (KEP) distributes 367mn KREIT units
as dividends in specie to its shareholders. We expect KREIT‟s
free float to rise to SGD 2.2bn (55%) in the next 12 months if
KEP sells its remaining c.12% stake. This could double
KREIT‟s liquidity to SGD 10mn/day. KREIT could also be
included in the FTSE EPRA/NAREIT indices after 8 May.
Highest-quality office portfolio: Singapore Grade A office
assets make up 74% of KREIT‟s portfolio value, compared to
c.34% for other office SREITs. This could rise to 78% if KREIT
acquires Marina Bay Financial Centre (MBFC) Tower 3. Its
portfolio age of 5.5 years and weighted average lease expiry of
6.9 years are outstanding. We expect KREIT‟s organic rental
growth to make up for the impact of income support falling off
during 2015-16, with DPU picking up in 2016E to provide 2013-
16E DPU CAGR of 2.9%.
Grade A rents could rise 13% p.a. in 2014-16E: Historically,
Grade A office rents have outperformed average rents during
up-cycles. During 2006-07 and mid-2010 to 2011, Grade A rents
rose 66% y/y (vs 37% for average rents) and 19% y/y (vs 11%
for average rents), respectively. We expect Grade A rents to rise
13% p.a. on average during 2014-16. We see KREIT as the key
beneficiary with its concentration of Grade A office assets.
Upgrade to Outperform, PT of SGD 1.64: We raise our 2013-
16 DPU estimates by c.3%. Our DDM-derived valuation uses a
beta of 0.9, risk-free rate of 2.0%, and a market risk premium of
5.5%. If the stock price weakens on 8 May, we would see it as
a buying opportunity. We lift our terminal growth assumption to
2.25% from 1.8% to account for the growth potential of KREIT‟s
high-quality portfolio.
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