Keppel Land's listed trust K-Reit Asia says distribution per unit (DPU) fell to 2.38 cents in the first quarter of this year, down 48 per cent from 4.6 cents a year earlier, on an enlarged share base after a rights issue. K-Reit issued 396.9 million new units - more than doubling the total number of units - in the May 2008 issue.

The fall in DPU was despite a 37 per cent surge in distributable income as the office trust achieved higher rents from new and renewed leases. Distributable income for Q1 March 31, 2009 rose to $15.7 million, from $11.4 million a year earlier. Besides better rental income, K-Reit benefited from lower borrowing costs and lower income tax due to a reduction in the tax rate. Net property income of $10.8 million was 18 per cent higher than $9.1 million in Q1 2008. The growth was underpinned by higher gross rental income from K-Reit's properties - Keppel Towers, GE Tower, Prudential Tower and Bugis Junction Towers. Gross rental income rose 29 per cent year- on-year to $14.5 million. The trust had borrowings of $577.6 million at end-March. None of the amount is repayable in a year or less.

'It has no immediate refinancing concerns as its existing loans will mature in 2011. 'The trust set up a $1 billion medium-term note programme recently to provide it with greater funding flexibility. K-Reit Asia acknowledged that the office sector softened in Q1. Average prime and Grade A monthly rents fell 34.4 per cent and 34 per cent year-on-year to $10.50 per sq ft (psf) and $12.30 psf respectively, according to data from CB Richard Ellis.

But the trust said its portfolio still enjoys positive rental reversions and has a diverse tenant business mix. Income from its one- third interest in One Raffles Quay also remains sustainable, with income support lasting until end-2011, K-Reit said. Given the uncertainties ahead, the trust will emphasise tenant retention and is looking to achieve greater operational and cost efficiency. It will also make selective asset acquisitions should opportunities arise. K-Reit units lost 0.5 cent to close at 68 cents yesterday.