DBS Group Research has maintained its "buy" call and 57 cents target price on Keppel Infrastructure Trust A7RU after it "surprised" investors with a special distribution.
Besides a regular quarterly distribution per unit of 0.97 cents, KIT plans to pay a special distribution of 2.33 cents, which brings the total for 3QFY2023 to 3.3 cents, equivalent to a "handy" 7.5% yield just for the quarter.
This brings 9MFY2023 DPU to 5.23 cents, and likely full-year 2023 distribution to 6.2 cents, equivalent to a yield of 14% at the current unit price.
In contrast, KIT paid 3.82 cents last year, which was slightly above the stable baseline distribution per unit (DPU) of 3.72 cents per year KIT paid from FY2015 to FY2020.
According to KIT, the special distribution is driven by higher EBITDA from KIT's management of Ixom and CityEnergy, which enabled management to upsize credit facilities on refinancing and share part of these capital optimisation proceeds with unitholders.
On Nov 2, KIT reported a distributable income of $266.1 million for 9MFY2023, up 93% y-o-y. The big gain was due to "capital optimisation" proceeds of $131.2 million in 3QFY2023.
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According to KIT, the capital optimisation concluded this year has yielded $273 million in funds. Out of which, $142 million has been earlier used to pay down bridge loans taken to fund acquisitions completed in FY2022, and the remaining $131 million is now being used to fund the special distribution for unitholders.
The special distribution came just over a month after Kevin Neo took over as the CEO of the trust's manager on Oct 1. Neo joined KIT in 2016 as a vice president and rose through the ranks to become the deputy CEO in June before the current top job.
DBS notes that KIT has thus far enjoyed a "fruitful" overall 9MFY2023, driven by acquisitions done in FY2022. "Under the new management team, we could be in for more excitement hereon, evidenced by moves to reward unitholders better based on strength in underlying portfolio earnings and valuations," says DBS.
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While this level of special distributions cannot be expected regularly, the management, according to DBS, has indicated that this is not a one-off and efforts will be made to share the proceeds of “capital optimisation” with unitholders from time to time. "This means there could be upside to our base case distribution forecasts hereon," says DBS.
DBS points out that KIT's unit price has dropped from 52 cents to 44 cents over the past quarter, in line with the overall downward pressure on the REIT sector because of rates staying higher for longer.
"However, unlike many S-REITS, KIT has limited exposure to economic cycles, counterparty issues, energy inflation or interest rate increases, so we believe share price has been over penalised and represents a great opportunity to accumulate, given a more dynamic management stance towards DPU growth," says DBS.
