K-Reit Plans Rights Issue; Q4 Distributable Income Up 62.6%

Source : The Business Times, January 24, 2008

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.