KREIT 4Q13 Expect Acquisition Of MBFC In 2014

Results in line as KREIT achieved full occupancy in Singapore and 99.8% occupancy across its portfolio. Financing costs remained low at 2.15% while upcoming refinancing may not see a substantial rise in borrowing costs with in-place borrowing rates at 3%. We expect the acquisition of MBFC Tower 3 to be a key driver for KREIT, and this could be supported by divestments to reduce the extent of equity fund-raising required. Maintain BUY. Target price: S$1.46.

 Results in line with expectations. Keppel REIT (KREIT) reported a DPU of 1.97 cents/share (unchanged yoy and qoq) on full occupancy, completion of acquisitions and developments, and lower finance costs. This was partially offset by dilution from the placements of 40m shares in 1Q13 and 95m shares in 3Q13. Results were in line with expectations, with 2013 DPU representing 99.7% of our forecast.

 Full occupancy in Singapore properties. Together with high occupancy (>95%) in Australia, total portfolio occupancy was
99.8% (up 0.4ppt qoq). The newly completed retail annex at Ocean Financial Centre (OFC), Ocean Colours, has also been fully leased. A significant tenant commitment at 8 Chifley (PPB Advisory) brought committed occupancy at the building to 95% (up 25ppt from 70% in 3Q13).

 Revaluation gain of S$389m arising from higher rentals secured in Singapore properties led to over S$330m gains across the Singapore properties, while Singapore cap rates remained unchanged yoy at 4%. The 11% yoy dip in the value of the A$ was mitigated by lower cap rates in Australia (down 0.3ppt to 6.7% from 7.0% in 2012) and revaluation gain from the completion of 8 Chifley (S$25m total gain for 275 George St, 77 King St and 8 Chifley). Singapore properties remained at a substantial 88% of the overall portfolio while Australia properties accounted for the remaining 12%.