Category: KepREIT
KREIT – BT
K-Reit plans rights issue; Q4 distributable income up 62.6%
Distributable income boosted by One Raffles Quay, higher rental contributions
K-REIT Asia, which yesterday posted a 62.6 per cent year-on-year jump in fourth-quarter distributable income to $6.9 million, is proposing a rights issue to raise gross proceeds of up to $700 million.
Net proceeds from the issue will be used to repay part of the $942 million bridging loan it took from Keppel Corp when it purchased a one-third stake in One Raffles Quay last year.
The issue price will be determined closer to the launch date and will be at a discount of up to 20 per cent to the then-prevailing trading price. On the stock market yesterday, K-Reit ended two cents higher at $1.50.
The trust, which owns prime office space in Singapore, plans to proceed with the rights issue ‘as soon as practicable’ instead of waiting until September when the bridging loan expires, K-Reit Asia Management Ltd’s chief executive Tan Swee Yiow said yesterday.
The rights issue will be effectively fully underwritten. Keppel Land and Keppel Corp, which jointly own about 72 per cent of K-Reit, have undertaken to take up their respective provisional allocations of rights shares and to make excess applications for any rights units not subscribed for by minority shareholders. However, Mr Tan said the intention is to keep K-Reit listed, which would mean that it must have a free float of at least 10 per cent.
Asked about the impact that the sub-prime crisis will have on demand for Singapore office space given layoffs at international banks, major occupiers of prime CBD offices, Mr Tan acknowledged it will probably result in tenants becoming more cautious in their forward planning commitment of space.
K-Reit’s 62.6 per cent rise in Q4 distributable income included a $2.8 million maiden contribution from One Raffles Quay. K-Reit completed the acquisition of its one-third stake in the prime office development in December last year. Also contributing to the improved Q4 performance was higher rental income arising from higher rental rates achieved for new and renewed leases.
Average gross monthly rental rates for the investment properties directly held by K-Reit rose from $3.80 per square foot (psf) in December 2006 to $4.65 psf in December 2007.
Net property income for the quarter ended Dec 31, 2007 was slightly over $7 million, up 13 per cent from the corresponding year-ago period. Gross rental income rose 19 per cent to $39.1 million last year.
K-Reit’s unitholders will receive a distribution per unit (DPU) of 4.99 cents for 2007’s July-December period.
The full-year payout amounts to 8.82 cents, reflecting a distribution yield of 5.88 per cent based on yesterday’s closing price.
For the year ended Dec 31, 2007, distributable income increased 42.5 per cent to $21.8 million, while net property income rose 19.6 per cent to $28.3 million.
The $951.4 million acquisition of the One Raffles Quay stake, coupled with portfolio revaluation gains of $433 million, have enlarged K-Reit Asia’s portfolio size by 210 per cent to $2.1 billion as at end-2007 from $677 million as at end-2006.
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.
Office REITs – UOBKH
Continued interest from foreign investors
Germany-based Commerz Grundbesitz Investmentgesellschaft has bought 78 Shenton Way for S$650m or S$1,857psf from a JV between Credit Suisse and CLSA Funds. The property comprises an existing 34-storey office tower with 275,000sf and a 6-storey extension with 75,000sf. The extension is currently under construction and is scheduled for completion in 2H09.
The purchase price is comparable to recent transactions in the vicinity. German pension fund SEB bought SIA Building (renamed Robinson 77) earlier this year for S$1,780psf. SEB also bought 12 floors of office space at Springleaf Tower in the Anson Road area for S$2,088psf.
There is limited supply of office space coming on stream over the next two years (2008 and 2009). We expect to see buying interest for office REITs, such as KREIT, Suntec REIT and CapitalCommercial, given recent steep correction.
Continued interest from foreign interest will also booster share price.
K-REIT – Lehman
Organic Growth via Rental Revision
Investment Conclusion
We initiate coverage of K-REIT with a 1-Overweight investment rating on the shares and a
12-month dividend discount model–derived price target of S$3.42. Based on our FY08E distribution yield projection of 4%, 120bp above the Singapore Government 10-year bond, we estimate K-REIT offers potential return of 36% at the current price. (This is an excerpt from our full initiation report – “Robust Organic Growth via Rental Revision”.
Summary
SREIT – Goldman Sachs
Strong Singapore; initiate coverage of 3 REITs, raise CDLHT to Buy
Looking beyond equity offering indigestion
We think a spate of equity offerings plus expectations of more to come in the Singapore REIT space has caused share prices to retreat. As it has become more expensive for REITs to issue equity, we are reducing our projections of contributions from potential acquisitions. But we note that rents across property segments remain strong and are raising our growth projections for hotels. We think SREITs still offer a compelling proposition of defensive characteristics overlaid with growth, organic and through acquisitions.
Focus on Singapore hotels and retail reits
While equity markets are choppy and sentiment in the Singapore residential market has been dampened by withdrawal of the deferred payment scheme, we believe the strong Singapore structural story remains intact. We like organic growth prospects for office, retail and hotel properties. We favor 1) hotels, given strong near- and longer-term prospects we see; and 2) retail, which we view as underappreciated and where rental growth could surprise on the upside. We like acquisition growth prospects of overseas REITs CRCT and AiTrust, but we think much is priced in and favor Singapore-centric REITs.
Initiating three new REITs, upgrading CDLHT to Buy
We initiate on CapitaRetail China Trust (Sell, TP S$2.18); Ascendas India Trust (Neutral, TP S$1.66); and Macquarie Prime REIT (Neutral, TP S$1.24). We upgrade CDLHT to Buy from Neutral on higher FY08/09 RevPAR yoy growth assumptions. We like CDLHT’s leverage to rising Singapore hotel room rates and potential for acquisition growth regionally and in Singapore, where sponsor City Developments has a pipeline of over 1,800 rooms. We are transferring coverage of AREIT, MLT, CDLHT, and ART from Leslie Yee to Paul Lian.
Adjusting target prices for REITs under coverage; focus on quality
We adjust 12-mo. TPs for 9 currently covered REITs by -8% and +20%. We reiterate our Buys on CMT, Suntec, and K-REIT. CMT and Suntec are exposed to Singapore retail and have size and liquidity, which we like in a flight-to-quality environment. Given the rising number of small-cap REITs of varying quality, we would focus on larger REITs with quality assets, good track records, and strong management. Risks: A fall in business and consumer confidence may impact rental reversions.