K-REIT's net property income and gross revenues more than doubled to $31.3 million and $39.3 million, respectively, led by its 88 per cent stake in Ocean Financial Centre (OFC) and improving occupancy rates at all properties.
Meanwhile, the income vacuum left by the expiry of One Raffles Quay's (ORQ) was partly mitigated by the GST rebates and positive rental reversions. Distributable income was $49.8 million or 1.94 cents distribution per unit (DPU).
Although the eurozone crisis has created uncertainties in the global economic climate, K-Reit's portfolio continued to demonstrate resilience by outperforming the general office market. Occupancy is now 97 per cent with improvement at all its properties, while leases that were renewed in the quarter saw positive rental reversions.
Meanwhile, OFC signing rents continued to hold up at $11-13 psf supported by higher occupancy of 93 per cent versus 91 per cent a quarter ago.
In Sydney, Apple has taken up additional space at 77 King Street, lifting occupancy by five percentage points to 93 per cent.
Gearing has risen to 43.9 per cent following the acquisition of 12.4 per cent stake in OFC, but the trust is on track to refinance its $598 million loan due at the end of the year with a five-year term loan.
This should mitigate refinancing risk and extend its debt expiry profile from 2.5 years to 3.6 years.
Maintain "buy"; TP upped to $1.23.
The long-weighted lease expiry of 6.2 years with 48.2 per cent of its portfolio net lettable area tied to long leases (more than five years) will help to mitigate leasing risk.
Meanwhile, H2 earnings will continue to improve led by rising portfolio occupancy, the additional stake in OFC, and the tax savings from MBFC Phase 1 which was obtained recently.
We raised FY12/13 DPU forecast by 1-3 per cent and TP by 1.6 per cent to account for better-than-expected portfolio occupancy. The stock now offers close to 20 per cent total return.
BUY
BUY
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