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Keppel-KBS US REIT: Strong Increase In DPU

Keppel-KBS US REIT  (SGX: CMOU) invests primarily in income-producing commercial and real-estate assets in key growth markets of the U.S. Currently, it has 13 office properties located in seven key growth markets in the U.S.

The latest report was for first-quarter earnings for the financial year ending on 31 December 2019.

Let’s take a quick look at the results.

  1. Gross revenue for the reporting quarter increased by 24.2% year-on-year to US$29.4 million, following suit net property income rose by 23.7% to S$18.2 million. The higher revenue and net property income were on the back of two acquisitions made by the REIT in November 2018 and January 2019. In addition, the REIT registered positive rental reversions and healthy leasing momentum further boosting revenue and net property income.
  2. Distributable income saw an uptick of 30.7% to US$12.4 million over the same period. This resulted in a distribution per unit (DPU) of 1.5 US cents, up by 30.4% on an adjusted basis.
  3. Next, let’s have a look at KBS-Keppel’s debt profile. As of 31 March 2019, KBS-Keppel’s gearing stood at 38.1% leaving it ample headroom before reaching the debt 45% limit. The current effective all-in cost of debt stood at 3.76 % with an average debt duration of 3.6 years. The REIT also mentioned that it has no long-term debt refinancing requirements until November 2021. Additionally, the REIT mentioned that its interest rate exposure is limited with its term loans significantly hedged. This is important as it ensures a stable distributable income for investors.
  4. KBS-Keppel’s properties were 92.1% leased as at end March 2019 with a weighted average lease expiry (WALE) by cash rental income of 3.9 years. The REIT reported that its leases have a 3% built-in average annual rental escalations, allowing for growth over the years.
  5. KBS-Keppel’s tenant base is well diversified with the top 10 tenants taking up 17% of the portfolio’s net leasable area (NLA) and contributing 19.8% of the cash rental income.
  6. KBS-Keppel’s net asset value (NAV) stood at US$0.78 at the end of the quarter.

The Road Ahead

Looking ahead, the REIT manager commented, “Against the backdrop of a challenging global macro-economic environment, KORE will continue to pursue its strategy of optimizing its assets and strengthening its income stream.

“The Manager remains focused on delivering long term value and stable distributions to Unitholders and will continue to grow KORE through its primary investment and management strategies of portfolio optimization, value accretive acquisitions, and prudent capital management.

“Leveraging rising office rents in the submarkets where KORE operates, the Manager will also seek to capture rental escalations and positive reversions as leases expire. At the same time, the Manager will seek opportunistic acquisitions of quality income-producing properties in first choice submarkets with positive economic and office fundamentals.”

Units of KBS-Keppel closed trading on Tuesday at S$0.72, sporting a price-to-book ratio of approximately 0.68 and a dividend yield of 5.01%.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not owns shares in KBS-Keppel REIT. Motley Fool Director, David Kuo, does not own shares in any of the companies mentioned.