Category: KepREIT
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
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.
Office REITs – UOBKH
Positive news from MBFC
There are several positive developments for the office market. Just last month, Commerz Real, subsidiary of Germany-based Commerzbank, bought 71 Robinson Road for a record S$743.8m or S$3,125psf. The latest positive news relates to the new downtown and Marina Bay Financial Centre (MBFC).
Office space at MBFC is well taken up. The strength of the office leasing market can be seen from healthy take-ups at MBFC. Phase 1 with 1.6m sf and Phase 2 with 1.3m sf of office space will be completed in 2010 and 2012 respectively. Both phases are more than 50% pre-committed by major financial institutions. Standard Chartered has signed a 12-year lease for 508,300sf at MBFC Tower 1 with an option to extend for another eight years. DBS Bank has signed a 12-year lease for 700,000sf occupying 22 floors at MBFC Tower 3 (Phase 2). Other notable financial institutions include Wellington Investment Management, American Express, Barclays and Pictet.
More leases likely to be signed soon. According to industry sources, Standard Chartered and DBS signed at S$8 to S$10psf pm. This is a discounted rental rate due to the huge space taken and the long duration of lease terms exceeding 10 years. Most other tenants signed at between S$12 to S$15psf pm for 3-year leases. Smaller plots were even signed at S$18psf pm. According to industry source, an additional 15% of space at MBFC is in advance stage of negotiation. We see this as an important development. If successfully closed, this will bring the level of commitment at MBFC above 70%, bringing a boost to confidence in the office market. We estimate MBFC accounts for 34% of office supply coming on stream over the next four years.
CapitaCommercial Trust (BUY/S$2.39/Target: S$2.63)
• CCT is well positioned to benefit from positive rental reversion with 29.4% of its leases for office space up for renewal in 2008 and 2009.
• We estimate that the lease for HSBC Building was renewed at an average rental of S$8.50psf pm in early May, much higher than existing passing rent of S$3.63psf pm.
• CCT is the largest office REIT and provides a diversified exposure to the Singapore office market. It provides FY09 distribution yield of 5.66%.
K-REIT Asia (BUY/S$1.45/Target: S$1.81)
• K-REIT achieved average gross rent increase of 14% qoq to S$6.86psf pm in 1Q08 due to positive rental reversion from existing properties and full-quarter contribution from ORQ. It is well positioned to ride the upswing in office rentals with 24.2% of net lettable area (NLA) due for expiry and another 15.5% of NLA due for rent review in 2008 and 2009.
• K-REIT provides attractive 2009 distribution yield of 6.05%. This assumes that the balance of the bridging loan from Kephinance Investment is refinanced at a steep interest rate of 4.2%.
Suntec REIT (BUY/S$1.64/Target: S$2.10)
• Suntec Office Towers achieved committed occupancy of 100% with recent new leases signed at between S$11.50 and S$13.50psf pm. It is well positioned to benefit from positive rental reversion with 9.5% and 44.1% of its leases for office space up for renewal in 2HFY08 and FY09.
• Suntec REIT provides FY09 distribution yield of 6.16%.