Author: tfwee
KREIT – UOBKH
2QFY08: Benefitting from positive rental reversion
K-REIT’s 2QFY08 results were better than our expectations. K-REIT reported gross revenue of S$13m in 2QFY08, an increase of 31.8% yoy. Revenue contribution from Prudential Tower, Keppel Towers & GE Tower and Bugis Junction Towers increased 66.4%, 33.1% and 21.7% yoy respectively. Contribution from One Raffles Quay (ORQ) totalled S$10.9m in 2QFY08. Average gross rent increased 7.44% qoq to S$7.37psf pm due positive rental reversion. Committed occupancy was 100% at Jun 08.
Distributable income surged 173% yoy to S$14.2m. K-REIT announced DPU of 1.39 cents for the period 8 May to 30 Jun 08. This will be paid on 28 Aug 08.
Benefiting from positive rent reversions. Growth in rental rates has moderated as the recent escalation in office rentals has forced more companies to alternatives such as transitional office space and relocating support functions outside the Central Business District (CBD). Rentals for Grade A office space within Raffles Place increased by a mild 1.7% qoq to S$17.82psf pm in 2QFY08. Occupancy has also dipped slightly from 99.1% in 1QFY08 to 98.3% in 2QFY08 (Source: Colliers). Impact from positive rental reversion will be muted in 2H08 as only 2% of net lettable area (NLA) will be expiring. Positive rental reversion will resume in 2009 with leases for 16.8% of NLA will expire and another 11.3% of NLA is subjected to rent review. Its average portfolio rental of S$7.37 is also significantly below current market rentals.
Refinancing for bridging loan. K-REIT has secured a new revolving credit facility from ultimate parent company Keppel Corporation with interest rate of 3.94% p.a. and maturity in Mar 2011. The interest rate of 3.94% is lower than our assumed worst-case scenario of 4.2%. The arrangement also provides flexibility for K-REIT to refinance to achieve lower cost of debt if conditions in the credit market improve. K-REIT’s gearing has been reduced from 53.9% to 27.7% after completion of the rights issue.
K-REIT provides attractive FY09 distribution yield of 6.6%, a healthy spread of 3.1% against 10-year government bond yield of 3.5%. Our target price is slightly reduced to S$1.67. The stock is trading at a 36.9% discount to current NAV/share of S$2.22.
KREIT – Nomura
First look
K-REIT’s 2Q08 results were in line with our expectations, with the positive reversionary profile in Singapore over FY08-09F underpinning valuations. We continue to see inherent value in K-REIT, currently trading on an implied enterprise value of circa S$1,175/psf. Having de-leveraged to 0.28x, K-REIT remains well placed to capitalise on opportunistic acquisitions in the listed and unlisted markets. STRONG BUY call reaffirmed.
2Q08: expectations met
PLife – DBS
Stable earnings
Comment on Results
2Q and 1H FY08 results were within expectations. 2Q gross revenue was S$12.49m, exceeding its IPO forecast by 8.8%. Singapore hospitals contributed S$11.97m gross revenue, while its three Japanese assets that were acquired in May contributed S$0.5m. Total expenses was S$2.92m, 22% higher than forecast due to higher contribution expenses for management & sinking fund for Mt Elizabeth Hospital, and higher trust level expenses following the addition of the Japan properties. 2Q net property income (NPI) was S$11.7m. DPU for 2Q is 1.66 Scts. Ex-date is 31 Jul and payment is expected on 27 Aug.
1H gross revenue and NPI are make up 49.7% and 47.7% of our full year forecasts. We expect PREIT to meet our forecasts with full contribution from its three Japanese assets in 2H.
Recommendation
Portfolio valued at S$902.2m. This includes its three assets in Japan – a pharmaceutical products distributing and manufacturing facility and two nursing homes. Singapore accounts for 92% of total assets, and Japan the rest.
Low gearing of 10% offers room for more debt funded acquisitions – it can borrow up to S$570m before reaching its 45% target gearing level. We are expecting more acquisitions as management has indicated its ambition to grow asset base to S$1.6bn.
Maintain Buy, TP S$1.35 based on DCF (WACC: 6.3%, Terminal growth: 1%). With Jun CPI soaring to 7.5%, MAS recently raised 2008 CPI forecast to 6%–7%. We like PREIT in today’s inflationary environment because its Singapore hospital gross revenue is pegged to the higher of adjusted hospital revenue or 1%+CPI. We have assumed CPI of 6.4% for 2008 in our forecasts. At current price of S$1.12, PREIT offers attractive net dividend yield of 6.1% and 6.4% for FY08F and FY09F, respectively.
PST – UOBKH
2QFY08: DPU Should Continue Improving With New Vessels
2QFY08 DPU 12% higher than 1QFY08’s. Pacific Shipping Trust (PST) reported a net profit of US$8.3m for 2QFY08 (1QFY08: US$0.5m, 2QFY07: US$5.5m). Excluding gains/losses on interest rate swaps of US$3.8m, net profit would have been US$5.2m (1QFY08: US$4.5m, 2QFY07: US$3.2m). Net profit should continue to improve due to the impact of new ships. Distributable income for 2QFY08 was US$3.6m (1QFY08: S$3.3m, 2QFY07: US$3.6m). The increase in distributable income was due to a fullquarter contribution from Kota Nabil and the maiden contribution from Kota Naga which was delivered at end-May 08. Both vessels are chartered to PST’s sponsor Pacific International Lines. Two 4,250 TEU vessels, CSAV Laja and CSAV Lauca, will be delivered in 2HFY08.
Net profit forecasts revised up, but distributable income forecasts maintained. Our earnings forecasts do not take into account gains/losses on interest rate swap contracts. These gains/losses are non-cash items and fluctuate from quarter to quarter depending on interest rate movements. They have no impact on PST’s distributable profit and cash. However, we raise our net profit forecasts for FY08, FY09 and FY10 by 17-22% to US$16.4m, US$21.7m and US$23.3m respectively on lower-than-expected depreciation as PST’s ships are now depreciated over 30 years instead of 25 years. Our distributable income forecasts remain at US$15.7m, US$22.1m and US$23.1m for FY08, FY09 and FY10 respectively. PST has declared a DPU of 1.09 US cent for 2QFY08, 12% higher than 1QFY08’s 0.97 US cent.
Maintain BUY and target price. Delivery of the four new containerships in FY08 will expand PST’s portfolio of vessels by 50% to 12 from its initial fleet of eight ships. The four new vessels are expected to raise PST’s total contracted revenue p.a. by 79% to US$61.9m. We maintain our target price of US$0.50 for PST, based on a fair value FY09 net yield of 9.5%. PST offers an annual net yield of 11-12%. Maintain BUY.
K-Reit – BT
K-Reit Asia reported on Monday a distributable income of $14.2 million for Q2 2008.
Net property income for the quarter was $9.2 million, an increase of 26 per cent compared to a net property income of $7.8 million a year ago.
This is 173 per cent higher than the distributable income of $5.2 million a year ago.
Distribution Per Unit (DPU) for the period is 2.18 cents, up from 2.14 cents a year.
K-Reit said its portfolio attained 100 per cent committed occupancy as at end-June. Average gross rental rates for investment properties held directly rose to $5.66 psf in June as compared with $4.28 psf for the same period in 2007.