K-Reit

K-Reit: announced agreement with Mirvac to acquire 50% interest in a new office tower, which will be developed on the site of the Old Treasury Building in Perth for an est consideration of A$165m, based on a pre-agreed cap rate of 7.15%. The transaction is expected to be end Mar ’13. The building is currently under construction and targeted for completion in 2H15. The new office tower will comprise a 35 storey premium Grade A building with NLA 331.5k sf. The Govt of Western Australia has committed to lease 98% of the building under a 25 yr lease (option for another 25 yrs) with embedded annual rent escalations. Assuming 100% debt funded, K-Reit’s leverage will increase to 45% (from 43.9%). This will be K-Reit’s 4th asset in Australia (12% portfolio exposure) and its second partnership with Mirvac. While the size of acq is not significant (3% of K-Reit’s portfolio), it helps underpin the Reit’s income stability , supported by a long weight avg lease to expiry (WALE) and blue chip tenant base. Deutsche maintains Hold with TP $1.13 Credit Suisse keeps at Neutral but raises TP to $1.26 from $1.22. Likes K-Reit as the best proxy to Spore Grade A office space with 6.2% yield. CIMB keeps at Neutral, but raises TP to $1.23 from $1.21.