K-Reit - UBS

K-REIT Asia
F ree float market cap improves after rights
􀂄 71% of minorities subscribed to right units, beating our expectations
KREIT has announced that 92.2% of the 396.9m rights have been taken up by its
unit-holders, 4.1% by minority unit-holders subscribing to excess rights, and the
remaining 3.7% will be taken up by Keppel Land and Keppel Corp. As a result,
Kepland and Kep Corp will own 43.6% and 31.5% of the REIT, respectively.
􀂄 Free float market cap rose to US$170m, but still small and illiquid
While KREIT’s free float has improved, it still the lowest free float market cap
among SREITs with Singapore commercial assets. For office exposure, we prefer
Suntec and CapitaCommercial Trust (CCT), which are more liquid and have higher
organic DPU CAGRs of 6.6% and 10% respectively, compared to KREIT’s 4.9%.
􀂄 SREIT top picks are defensives: Suntec, FCT and Parkway Life REIT
We continue to expect investors to favour large-cap liquid SREITs and believe
interest in KREIT will be limited. There is potential uncertainty about the
refinancing of its remaining bridging loan of S$390m, which expires in September
2008, and how Keppel Corp and/or Keppel Land will seek to increase liquidity and
free float.
􀂄 Valuation: upgrade from Sell to Neutral, raise PT from S$1.20 to S$1.45
We adjust our DPU estimates to account for lower office rent assumptions for One
Raffles Quay. We base our price target on a DCF analysis, using a beta of 1.2,
market risk premium of 5%, and terminal growth rate of 2.3%.