Strategic Direction
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| Through execution of its growth strategies, K-REIT Asia delivers sustainable
returns to Unitholders. |
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Investment Strategy
The principal investment strategy
of K-REIT Asia is to generate steady
and sustainable returns for its
Unitholders by owning and investing
in a portfolio of quality income-producing
commercial real estate
and real estate-related assets.
Although K-REIT Asia's current portfolio
of assets is located in Singapore, its
pan-Asian mandate enables it to invest
in commercial properties in other
growing Asian regions. The Manager
focuses on quality assets located in
major regional metropolitan centres in
Asia and seeks third-party acquisitions
that offer good potential for stable
income growth and asset appreciation
in the medium to long term.
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The Manager adheres to stringent
criteria for evaluating potential
acquisitions. This involves a thorough
review of exposures, risks and returns,
and overall value-add to K-REIT Asia's
existing portfolio and future growth
expectations. Given K-REIT Asia's
strong sponsor and healthy financial
position, the economic downturn
presents opportunities for selective
asset acquisitions.
In the long run, many international
companies continue to view Asia as
an engine of growth and are confident
of Singapore's pivotal role as a key
business hub. As such, the Manager
believes that the need for quality office
space will continue to grow.
Proactive Asset
and Lease Management
Through proactive asset and lease
management, the Manager continued
to achieve a high committed
occupancy rate of 99.0% for
K-REIT Asia's portfolio as at
end-2008 while raising gross rental
rates steadily. However, the worsening
global economic crisis has undoubtedly
cast a cloud over Singapore's office
sector. It has been reported that some
companies intend to hold back on
expansion plans and forward leasing
commitments. Therefore, it is expected
that demand for office space is likely to
slow down in 2009.
Despite the sombre outlook, there
are mitigating factors in K-REIT Asia's
favour. Its major tenants in the financial
services sector have signed long-term
leases of between 5 to 15 years,
with the weighted average lease
term to expiry of its portfolio at
5.6 years as at 31 December 2008.
The Manager will continue to leverage
K-REIT Asia's organic growth potential.
Its average portfolio rent is well below
market rents, even considering present
adverse conditions. Income from
its one-third interest in One Raffles
Quay Pte Ltd is also buffered against
downside risks with income support
lasting until end-2011.
The Manager will continue to take
a proactive approach towards
marketing activities and build strong
relationships with tenants. Given the
uncertain times ahead, the Manager
will place emphasis on tenant retention
and seek to improve operational and
cost efficiencies.
As a staunch supporter of
environmental sustainability, the
Manager aims to instill more green
practices and initiatives for
K-REIT Asia's buildings to minimise
the impact of commercial real estate
on the environment.
Capital Management
For the financial year ended
31 December 2008, K-REIT Asia's
outstanding borrowings totalled
$581.1 million, or 27.6% of the value
of its total assets - well within the
60.0% borrowing limit set out in the
Property Fund Guidelines. This was
an improvement from the 53.9%
aggregate leverage ratio as at
31 December 2007. Weighted average
funding cost for 2008 was 3.19%
per annum, with an interest service
coverage ratio of 3.1 times.
The improvement in K-REIT Asia's
aggregate leverage position was due
to the reduction of debt, utilising the
net proceeds of $550.7 million raised
from the successful rights issue
completed in May 2008. As a result,
K-REIT Asia has no debt refinancing
needs until 2011.
The Manager will continue to seek
secure diversified funding sources.
A $1 billion multi-currency mediumterm
note programme was established
in January 2009 to further provide
K-REIT Asia with greater flexibility to
manage capital requirements.
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