K-REIT

K-REIT: Announced 1Q12 results which were above estimates. NPI at $28.5m, +90.8% yoy and +60.6% qoq, while DPU at 1.9c, +6% yoy and +36% Qoq. (Comparison based on pre-adjustment for rights) The sharp qoq increase was boosted by the full quarter’s contribution from Ocean Financial Centre acquisition completed in Dec-11.

Strong performance was due largely to higher contributions from grp’s existing properties and the newly acquired OFC, which contributed $17.3m to property income. Share of results of associates also increased 82.6% to $11.2m as a result of higher contributions from BFC Dev and ORQ. Interest income also increased 22.0% to $6.9m, due mainly to the coupon interest income from 8 Chifley Square and higher interest income on the shareholder loan to BFC Dev.

Going ahead, grp remains confident of prospects and note that its long portfolio WALE of 6.4 yrs, good quality tenants and limited amount of leases due for rent review and renewal will mitigate downside risks. Aim to focus on attracting new tenants, retaining its existing tenants, and managing its lease profile. Manager will also selectively pursue opportunities for strategic acquisitions.

We note that grp’s fundamentals remain strong with an annualized Distribution yield of 7.9% vs SGX office REITs yield of 6.2%, while overall portfolio occupancy rate stood at 96.1%. Leverage ratio stood at an acceptable 41.8% vs SG Office reits average of approximately 35%, while interest coverage stood at a comfortable 5.5x. Note however that K-REIT is currently receiving rental support from parent K-Land on its OFC acquisition.

Ratings as follow:
Citi maintains neutral with $0.88 TP
Deutsche maintains Hold with $0.94 TP
UOB Kay Hian maintains Hold with $0.95 TP