Company news

Aspial and Fragrance entered into a 50:50 JV to acquire ~29.3% stake in LCD Global Investments at S$0.33/share if the latter defers its previously announced rights issue, or S$0.30/share otherwise.

Olam Australia announced the sale of Western Wool Marketing to a South Australian-based company, Quality Wool.

Keppel Reit announced that nine of its 11 completed office towers in Singapore and Australia have achieved 100% committed occupancy.

LifeBrandz received SGX approval for its proposed placement of 500m new shares at S$0.0036/share.

Aztech Group's wholly-owned subsidiary has changed its name from Aztech Electronics to AZ Marine Shipping, and shifted its core business to ship brokering services.

KREIT all eyes on OFC to meet its breakeven rent

In-line 2Q14/1H14 results
KREIT posted a 3.6%/1.8% YoY decline in 2Q14/1H14 DPU, meeting 24.6%/50.2% of our full-year estimate. The decrease came on the back of the expiry of MBFC rental support and higher borrowing costs. Portfolio occupancy rate was slightly down 40bps to 99.4%, with some tenants churn at Ocean Financial Centre (OFC) and 77 King Street. Aggregate leverage edged up to 42.8% in 2Q14 (1Q14: 42.4%), with higher all-in financing cost of 2.2% (1Q14: 2.18%).

Room to minimise potential income shortfall
The income support for OFC will cease in 2017. Management cited the monthly breakeven rent for OFC’s rental support at SGD12.60-12.70 psf, which is higher than our estimated average passing rent of SGD9.20 psf for 2Q14. Given the lack of new Grade A office supply in the Central Business District from now until mid-2016, we see room for KREIT to minimise potential income shortfall.

MBFC Tower 3 is over 90% occupied and KREIT has yet to announce any acquisition plans from its sponsor. To fund this hefty acquisition of SGD1.1-1.3b, equity fund raising remains on the cards, in our view. The SGD512m divestment of Prudential Tower is likely to complete by September. We forecast flat DPU CAGR over FY13-19E with the progressive expiry of income support.

We keep our DPU forecasts unchanged and reiterate our HOLD recommendation with an unchanged DDM-derived TP of SGD1.32 (cost of equity = 6.9%; Tg = 1%).

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

Keppel REIT free float and liquidity could double this year

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.