KREIT – UOBKH

4Q07: Rights issue could dampen sentiments

Lacklustre earnings. Property income increased 21.2% yoy to S$11m in 4Q07. Average gross rent increased 35.9% qoq to S$6.02 due to acquisition of One Raffles Quay and associated income support. Total contribution from one-third interest in One Raffles Quay was S$2.8m.

There was huge increase in expenses. Manager’s management fees and trust expenses increased 99.5% and 456.5% yoy respectively due to the huge increase in portfolio of investment properties. Interest expense also doubled to S$3.8m. Net Income contracted 71% yoy to S$0.9m.

K-REIT has declared DPU of 2.8 cents for 4Q07. This will be paid on 29 Feb 08. K-REIT booked in revaluation surplus of S$295m. NAV/share is S$3.78 (last quarter: S$2.58).

Proposing rights issue. K-REIT Asia plans to propose a rights issue to raise up to S$700m. The rights shares are likely to be priced at a discount of up to 20% to prevailing market price. Proceeds from the rights issue will be utilised to repay bridging loan of S$942m from Keppel Corporation to finance the acquisition of one-third interest in One Raffles Quay. Keppel Corporation and sponsor Keppel Land, who already own 72% of K-REIT in aggregate, will take up their respective allocations for the rights issue.