Keppel-KBS US Reit prices IPO at 88 US cents per unit

KEPPEL-KBS US Reit, sponsored jointly by Keppel Capital and KBS Pacific Advisors, is issuing 262.77 million units at US$0.88 apiece in an initial public offering (IPO).

Separately, the sponsors - which jointly own the real estate investment trust (Reit) manager - are subscribing for some 119.43 million units while cornerstone investors have agreed to subscribe for 246.37 million units at the offer price.

These cornerstone investors are Affin Hwang Asset Management Bhd, Hillsboro Capital and DBS Bank as well as certain private banking clients of Credit Suisse and DBS Bank, the preliminary IPO prospectus lodged on Wednesday shows.

The over-allotment option will not exceed 12 per cent of the number of units to be issued under the placement and public offer tranche. The proportion of placement and public offer tranche is not fixed yet.

Keppel-KBS US Reit said that it is expected to raise gross proceeds of about US$553.1 million from the exercise.

The public offer opens on Nov 2 and closes on Nov 7. Trading of units on the Singapore Exchange is expected to begin on Nov 9.

The Reit offers an attractive distribution yield and total return, and its distribution yield for 2018 is estimated to be 6.8 per cent, with expected distribution yield of 7.2 per cent for 2019, reflecting a total return of 12.6 per cent.

Some 79.5 per cent and 75.2 per cent of cash rental income for 2018 and 2019 is derived from existing leases respectively. At least three-quarters of interest expense will be hedged.

The initial portfolio of Keppel-KBS US Reit will comprise 11 freehold office properties in the US spanning 3.23 million sq ft in net lettable area, with an appraised value of about US$829.4 million.

Citing a diversified portfolio, Keppel-KBS US Reit said that these properties are located in Seattle and Sacramento on the west coast; Denver, Austin and Houston in the central region; as well as Atlanta and Orlando in the east coast.

No single state contributes more than 46 per cent and 26 per cent of appraised value and NLA of the IPO portfolio respectively.

The portfolio's occupancy stood at 88.1 per cent as at June 30, while the committed occupancy was 90 per cent as at Sept 30. It has a stable weighted average lease expiry (WALE) by NLA of 3.7 years as at June 30, with below market average rents for expiring leases.

"This offers the opportunity to lease expiring space at potentially higher market rent rates," Keppel-KBS US Reit said.

It added that organic growth will be driven by built-in rental escalations of 2-3 per cent; some 97.5 per cent of existing leases by cash rental income have built-in rental escalations.

Upon listing, Keppel-KBS US Reit will also have a aggregate leverage of 36 per cent and average debt tenure of 4.5 years, providing debt headroom of some US$131.6 million to fund future growth.

"The association with Keppel Capital and KBS offers various growth avenues," Keppel-KBS US Reit said. The pipeline of potential acquisitions could come from third-party vendors through the sponsors' deal origination capabilities, it added.

To enjoy tax transparency under US taxation rules, no single unitholder of the US Reit will hold more than 9.8 per cent of the outstanding units.