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Broker's Take: 'Hold' rating kept on Keppel Reit

Tuesday, November 25, 2014 - 10:22
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DMG Research has maintained its "hold" rating on Keppel Reit, with a target price of S$1.18, implying a 0% upside.

DMG Research has maintained its "hold" rating on Keppel Reit, with a target price of S$1.18, implying a 0% upside.

The reit on Monday obtained approval from its unitholders to acquire a one-third interest in Marina Bay Financial Centre Tower 3 for S$1.248 billion (S$2,790 per sq ft), inclusive of rental support amounting to S$49 million.

Excluding rental support, the acquisition price works out to S$1.199 billion, or S$2,680 psf.

DMG said after adjusting for net liabilities of S$538 million in the acquired vehicle, Keppel Reit would be forking out S$725 million for the latest acquisition.

It noted that Keppel Reit is funding the purchase from a combination of new units to be issued to the seller Keppel Land, a recently completed placement, the balance of proceeds from its recently-divested Prudential Tower, as well as bank borrowings.

"Post-acquisition, Keppel Reit's gearing will spike up marginally to 43.8 per cent. It will also have the youngest office portfolio among its peers with the average age of its properties at about five years," said the research house.

It added that occupancy at MBFC Tower 3 has climbed to 96 per cent, with passing rent of S$9.00 psf per month, while the rental support will lift this to S$10.40-$10.80 psf.

Current signings are at S$11-$13 psf. Keppel Reit recently reported Q3 2014 results, with quarterly distribution per unit declining 6.1 per cent year-on-year due to expiry of rental support from MBFC 1 and 2, as well as higher borrowing costs.

"All eyes are now on Ocean Financial Centre to hit its breakeven rent, when its income support ends in 2016-2017," said DMG.

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