Tuesday, July 20, 2010

K-Reit net property income up 49% in Q2, but DPU falls 38%

It buys office, retail space in Sydney building for A$120 million

K-REIT Asia has acquired office and retail space at 77 King Street in Sydney, Australia, for A$120 million (S$145 million).

The trust announced the move yesterday - as well as improved results for the second quarter ended June 30. Boosted by recent acquisitions, net property income (NPI) jumped 49 per cent from a year back to $18.4 million. This raised distributable income to unit-holders 26 per cent to $22 million.

Distribution per unit (DPU) was 1.64 cents, falling 38 per cent from 2.64 cents a year ago as the unit base expanded due to a $620 million rights issue last November.

Adjusting for the rights issue, DPU in Q2 last year would have been 1.32 cents. Based on this, DPU would have risen 24 per cent year-on-year.

K-Reit's latest purchase at 77 King Street comes hot on the heels of two other deals. It bought a 50 per cent stake in 275 George Street in Brisbane early this year, and an additional 29 per cent interest in Singapore's Prudential Tower late last year.

77 King Street is in Sydney's central business district and is owned by Kingvest Pty. K-Reit bought an 18-storey office block with 130,394 sq ft of space, and part of a retail component with 16,856 sq ft of space.

Rents at the property are around A$570 per sq metre a year - at the lower end of market rates - but the seller will provide K-Reit with an NPI guarantee of up to A$4 million for six years. The leases also come with fixed annual rental escalations.

The space will be fully leased by the time the acquisition is complete in Q4. Key tenants include CapGemini Australia and Fitch Australia.

K-Reit will fund the purchase with equity from its rights issue and debt. Its aggregate leverage at June 30 was 15.2 per cent, and is expected to rise to 20.4 per cent after the Sydney deal is done.

For the first half ended June 30, K-Reit's NPI surged 40 per cent year on year to $32.3 million. Distributable income to unit-holders rose 20 per cent to $39.8 million.

DPU was 2.97 cents, down 41 per cent from five cents a year ago - also because of the rights issue. Adjusting for that, DPU last year would have been 2.49 cents, reflecting a 19 per cent year-on-year rise.

For the period Jan 1 to June 30, unit-holders will receive a distribution of 2.97 cents on Aug 26.

The chief executive of K-Reit's manager, Ng Hsueh Ling, is upbeat. The Singapore office market is likely to have 'passed the trough' and the Reit has seen more sign-ons, she said at a briefing yesterday.

As at June 30, K-Reit's portfolio occupancy rate was 97.9 per cent, up from 96 per cent a quarter earlier.

But the portfolio's average gross monthly rent dipped slightly to $8.19 psf from $8.30 psf. According to Ms Ng, this was the result of a lease restructuring. K-Reit had negotiated for the extension of some leases and offered slightly lower rents in return, so lease expiries would be spread out better.

Source: Business Times, 20 Jul 2010

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