– EGM to be held on 11 October 2007. K-REIT Asia (K-REIT) has issued a circular to its unit holders on the voting of six resolutions related to the proposed acquisition of a one-third interest in One Raffles Quay. To fund the acquisition, K-REIT has proposed raising S$966.5m through the issue of S$250-400m in convertible bonds and S$716-567m in equity.

– Tight office supply situation expected to persist until 2010. Based on the government’s GDP growth forecast of 4-6% pa, we expect office demand to average 1.8msf pa over 2008-10, compared with supply of 1.45msf pa. Some of the new supply in 2010 is also pre-committed. Thus, we believe it is timely for K-REIT to acquire One Raffles Quay and capture the strong rental reversion trend.

– Acquisition positions K-REIT as key Marina Bay office REIT. Given Keppel Land’s support for K-REIT, we believe it could become the largest office REIT in Singapore with over S$5bn in assets. We think the stake in One Raffles Quay at S$2110psf is fair, which results in a 2008E net yield of 1.9% (increasing to 5.0% with income support). With the sponsor’s income support, the injection should be yield accretive for the REIT in 2008.

– Valuation Buy rating and S$3.61 price target. We derive our price target from a DCF valuation, taking into account explicit five year DPU estimates, assuming a growth rate of 7% and a terminal growth rate 2.25%. We raise our 2007 EPS estimate from S$0.06 to S$0.07. At the current share price, we estimate K-REIT’s 2008 yield will be 3.9% and forecast a DPU CAGR of 11% for 2007-12.