KEPPEL-KBS US REIT (SGX:CMOU)
Keppel-KBS US REIT - Robust Leasing Momentum; BUY
- Keep BUY, USD0.88 Target Price, 9% upside. 2Q19/1H19 results are in line, at 25%/50% of our full-year estimates.
- Key positive takeaways (2Q) are: strong occupancy rate improvement and healthy positive rental reversions, driven by the technology and related services sectors.
- We maintain that Keppel-KBS US REIT is still undervalued, with a FY19F yield of 7.6%, and a solid 250bps spread over office S-REITs. We are hosting an investor meeting with management tomorrow, and will publish a detailed note after that.
Adjusted 2Q DPU beats forecast by 2%.
- Keppel-KBS US REIT (SGX:CMOU)’s 2Q19 revenue and NPI grew 29% and 30% y-o-y, driven by contributions from recently-acquired The Westpark Portfolio, Maitland Promenade I and a higher occupancy rate for its existing properties. Finance costs surged 59% y-o-y on higher borrowings taken to fund acquisitions.
- Overall adjusted DPU (restated for rights issue) for the quarter rose 7.1% y-o-y, at 2% more than what was forecasted in its IPO prospectus.
Healthy portfolio occupancy rate improvement in 2Q.
- Keppel-KBS US REIT’s committed more than estimated q-o-q to 94%, underpinned US.
- In 1H19, Keppel-KBS US REIT leased a total of ~376,000 sqf of office space – this accounted for 8.8% of total NLA, with more than half being lease renewals. More than two-thirds of lease renewals came from the fast-growing technology hubs of Seattle, Austin and Denver, which reaffirms our earlier thesis of booming technology sector office demand.
Positive rental reversion of 8.6% was achieved for the leases signed in 1H19.
- The trend is expected to rents (2019- 2021) ranging USD 15% below the weighted average asking rental rate of USD26 psf. In addition, Keppel-KBS US REIT’s leases have an average inbuilt annual rental escalation of 3%, driving organic DPU growth.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-07-17
SGX Stock
Analyst Report
0.880
SAME
0.880
