Investors keen on Prosperity REIT's stable growth, distribution yield

But there are some worries as well.

During a visit to nine investors in Malaysia organized by Maybank Kim Eng recently, overall feedback on Prosperity REIT (PREIT) was mixed.

According to a research note from Maybank Kim Eng, investors were positive on PREIT like its stable growth and good distribution yield.

However, the report also noted that some worry about impact of higher refi costs w/ some debt maturing Aug 2015, US rate hike risks, andupcoming office supply in Kowloon East.

Here's more from Maybank Kim Eng:

We took Prosperity REIT to see nine investors in Kuala Lumpur on Monday. Management highlighted latest spot rentals of different properties were higher than passing rentals by HKD2.6 – 7.6/sq ft (or ~18 – 36%).

9 Chong Yip Street, an asset with close to 40% lease expiry in 2015, has current spot rents of HKD20/sq ft/month and the REIT targets at least HK2/sq ft/month higher after AEI works.

On refinancing, PREIT indicated if it were to do a refinancing now, current five-year term loan is around Hibor+140bps and expects stable spread over the next few months.

Hence, future refinancing will be higher than the Hibor+81bps low rate secured in 2010.

Key questions from investors were: 1) upcoming supply in Kowloon East, 2) any impact from Occupy Central, 3) rental trends, and 4) potential asset acquisitions.

PREIT indicated that every month, its investment team looks at potential acquisition opportunities.

Finding a DPU accretive deal is not easy given low cap rates in the market and proactive attitude of individual Hong Kong investors.

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