KREIT – UOBKH

Proposed Maiden Acquisition of One Raffles Quay

Proposed maiden acquisition of One Raffles Quay. K-REIT has announced the proposed maiden acquisition of one-third interest in One Raffles Quay for S$941.5m from the its sponsor, Keppel Land’s divestment of the property. It has also entered into a conditional share purchase agreement with Boulevard for the acquisition, who will provide K-REIT with an income support of S$103.4m through 2011 should the financial performance of the property does not meet certain requirements. The acquisition will be funded through equity fund raising whereby Keppel Land will subscribe to the issued new units to maintain its proportionate stake of 40.7% in K-REIT.

One Raffles Quay – Prime office property. One Raffles Quay is one of the largest prime office building with an NLA of 1.3m sf located in the heart of CBD. It comprises of a 50-storey North Tower and a 29-storey South Tower, with an underground link to the Raffles MRT station, a plaza featuring a water fountain, and a sheltered drop-off point and carpark hub with 713 carparking lots. The property also boasts of large banks and financial institutions such as ABN AMRO, Deutsche Bank AG, Ernst & Young and UBS AG as its tenants.

Potential trigger to a series of injections. With the first seen divestment of interest in One Raffles Quay from Keppel Land to K-REIT, we believe this is only the start to a series of potential injections of properties into K-REIT from its parent. The proposed acquisition will also bring K-REIT’s portfolio to S$1.6b from S$677m, a step nearer to meeting its target portfolio of S$2.0b over the next few years.

Maintain BUY, target price at S$3.39. We have previously assumed S$100m-150m of acquisitions p.a in our model, and will be revising our acquisition assumptions to accommodate a more aggressive scenario. Currently, it has a gearing of 28.0%. We re-iterate BUY on K-REIT with a target price of S$3.39. The stock is currently trading at a yield of 2.57%.