Keppel-KBS US Reit Q4 DPU falls below forecast owing to rights issue

KEPPEL-KBS US Reit (KORE) has declared a fourth-quarter distribution per unit (DPU) of 1.25 US cents, 16.7 per cent lower than the forecasted 1.50 US cents due to dilution from a recent rights issue.

The rights issue partially funded the acquisition of the Westpark portfolio in Seattle in November. Excluding the effects of the acquisition and rights issue, fourth-quarter DPU would have been 1.51 US cents, in line with the real estate investment trust (Reit) manager's forecast.

KORE was listed in November 2017, so forecasts for the fourth quarter of 2018 were derived from one quarter of its 2018 forecast.

For the three months ended Dec 31, distributable income rose 8.6 per cent to US$10.3 million, helped by a US$707,000 contribution from Westpark, which was acquired on Nov 30 last year. The contribution from Westpark was 7.1 per cent higher than the US$660,000 represented in proforma financial information that was shared last year.

Gross revenue rose 5.9 per cent to S$24.5 million. Net property income rose 7.7 per cent to US$14.6 million.

Portfolio committed occupancy was 91.6 per cent at the end of 2018, due to higher committed occupancies at some of the properties and the addition of the Westpark Portfolio. The weighted average lease expiry (WALE) by cash rental income for KORE's portfolio was four years. For KORE's top 10 tenants, the WALE was stronger at 5.4 years.

From its listing to the end of 2018, KORE has achieved total committed space of approximately 741,000 square feet (100 leases), with demand mainly from tenants in the fast-growing technology, finance and professional services sectors.

In the last quarter, KORE saw "continued strong momentum" in leasing activity, with approximately 133,000 square feet (18 leases) committed across all properties, a majority of which recorded positive rental reversion, it said. 

KORE also acquired Maitland Promenade I in Orlando on Jan 16.

New leases signed since listing have built-in average annual rental escalations of 3 per cent, KORE said. With this, the portfolio has built-in average annual rental escalations of 2-3 per cent.

KORE makes distributions on a semi-annual basis. Its distribution for the half-year ended Dec 31, amounting to 2.40 US cents, will be paid out on March 26, 2019.

The Reit manager said: "2018 ended with more volatility than usual in the financial markets. Nonetheless, US economic indicators remain strong. There is a general expectation of continued growth, albeit potentially at a slower pace."

It added: "Solid leasing momentum saw the US end 2018 with 55.3 million suare feet of net absorption and a national vacancy rate of 9.9 per cent, with rent growth holding steady at 1.8 per cent. Low capitalisation rates in gateway markets however, are increasingly pushing investors into higher-yielding secondary markets such as Seattle, which ranked sixth for rent growth due to the booming technology sector.

"Across the key submarkets that KORE operates in, office fundamentals continue to be generally favourable with positive rent growth. Annual office transaction volume in 2018 exceeded US$120 billion for the fourth consecutive year and will likely continue to do so in 2019, according to CoStar."

Keppel-KBS US Reit units jumped 3.5 Singapore cents or 5.43 per cent to close at S$0.68 on Thursday before results were released.