BUY K-Reit, Goldman Sachs agree!

K-Reit is now trading at $2.43, a retraction of 30% from its high of $3.54 just some months back.



In late July, K-Reit announced acquisition of 1/3 stakes in One Raffles Quay (ORQ, see picture above) from Keppel Land for $941.5M. This works out to be $2194psf. Comparing this to Finlayson Green (just opposite ORQ) which was transacted at $2650psf, the price paid by K-Reit is a steal! This price by K-Reit is at the lower end of market expectation for a spanking new prime grade A office building located at the New Marina Bay Financial area.

So why did the price tanked? I can think of 2 reasons:

1. To a larger extend, drag down by the overall sentiments of the market. K-Reit released its strong interim results the same day the government increased DC to 70%. A case of bad timing.
2. To a lesser extend, some investors might be concern about the risk of funding its acquisition of ORQ; which shouldn’t be much of a worry. Kepland has indicated its intension to subscribe for K-Reit’s equity placement. Furthermore, as part of the acquisition agreement, Kepland is to provide income support for K-Reit. It has agreed to effect top-up payment to K-Reit amounting to 1/3 of the amount by which the net property incomes falls short of a guaranteed income amount of the calendar quarters from Oct 1 2007 to Dec 31 2011.
So you see, the risk exposure for K-Reit is as low as you can wish for.

Here are some points made by Goldman executive director Leslie Yee to Business Time Weekend:
1. GS reiterate our positive view on S’pore Reits and recommend investors to buy in the prevailing choppy markets.
2. S’pore Reits offer an upsides of 7-37%
3. Four attributes that make Reits ‘defensive’. These are: low gearing; income payout which is often 100%; secured leases; and limited development risk.

So what to do next week? I’ll leave you with this – US Commerce Department reported that New-home sales rose 2.8% in July.

Disclaimer: All shares recommendations in this Blog are my personal opinion. Readers are encouraged to do their own research before investing. Remember, it’s your own money! I will not be liable for any losses incurred.