See how compelling Keppel REIT's headline yields are

4Q12 DPU was up 40%.

According to CIMB, KREIT continued to provide a positive read-through of the office market in 4Q, with management guiding positively for ORQ. Headline yields are compelling but we see this as merely compensating for its higher asset leverage and income support.

Here's more from CIMB:

4Q/FY12 DPUs were spot-on at 25/100% of our FY12 forecast, but came in slightly above street expectations. We raise our FY13-14 DPUs on stronger ORQ performance and adjustments to income support at OFC. Our DDM-based target price (discount rate: 7.7%) rises accordingly but we maintain our Neutral call. We see rerating catalysts from accretive acquisitions.

Steady quarter
4Q12 DPU was up 40% yoy on acquisitions and positive take-ups, partially inflated by a distorted base in 4Q11 due to a mismatch in the timing of OFC contributions and unit-base expansion. Qoq, DPU edged up 0.6%. Results provided a positive read-through of a stabilising office market.

Portfolio occupancy rose to 98.5% from 98.2% on higher take-ups at OFC, where signing rents ranged S$9-11psf. At ORQ, where the market is concerned about the drop-off of income support (ORQ saw the last of its GST rebates in 3Q), management guided that the impact should be mitigated by the strong rental reversions (due to low expiring rents) on its rental reviews at the asset and FY12 acquisitions.

On acquisitions
Thanks to revaluation gains, asset leverage dipped to 42.9% from 44.1% as at end-3Q, albeit still the highest among S-REITs. Although this could warrant some equity fund-raising for sizeable acquisitions, management highlighted the possibility of asset divestment to reduce the quantum of possible cash calls. We understand that management has yet to indicate interest for a potential purchase of MBFC Tower 3.

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