Keppel-KBS US Reit - Quick Review - Offering Price is US$0.88

Summary

1. Keppel-KBS US REIT offers the distribution yield for Forecast Year 2018 of 6.8% and Forecast Year 2019 of 7.2%. This translate to 5.8% yield growth
2. Net Asset is US$0.84 translate to 1.04 P/B
3. Rental escalation between 2-3% for 97.5% of current lease
4. Positive rental reversion might be possible as the current passing rate is lower than market rate
5. weighted average lease expiry (“WALE”) by NLA as at 30 June 2017 of 3.7 years (ManuLife is 5.3). No single year has more than 20% of total leases expiring which is good to diverse the concentration risk.
6. 36% gearing providing additional debt headroom of approximately US$131.6 million before reaching 45%, however right issues might be coming in the future.
• Interest rate is floating at average of 3.x% vs ManuLife fixed interest rate around 2.x%
7. Interest coverage ratio based on FY2017 is 3.3x whereby ManuLife is 5x
8. Occupancy Rate is 90% whereby ManuLife is 95%
9. Debt maturity earliest will be in FY2021 with the average interest of 3.35%. Borrowing are dominated in US dollars hence provide natural hedge to the currency risk.
10. Diversified tenant base with limited tenant concentration with top tenant contribute not more than 22.3%, led by tenants in growth and defensive sectors such as technology, finance and insurance, professional services as well as medical and healthcare
11. All the 11 property are freehold mixture of Grade A and Grade B office (ManuLife is mainly on Grade A) and the first distribution, which will be in respect of the period from the Listing Date to 30 June 2018 (“First Distribution”), will be paid by the Manager on or before 30 September 2018.

Beware of the forex loss when in the future they issue rights and you try to subscribe more than what you allocated and do not manage to get it. Look at HWZ forum for some of the sharing on ManuLife rights

Download KEPPEL-KBS US Reit IPO Prospectus here

In Summary,
I am favouring ManuLife (Not vested) and I think the main drawback is the 1st distribution is still far away - don't see why I want to lock my money so long.

Note:
“Cash Rental Income” is defined as rental income and recoveries income without straight-line adjustments and amortization of tenant improvement allowance, leasing commissions and free rent incentives.

OVERVIEW OF KEPPEL-KBS US REIT

Keppel-KBS US REIT is a Singapore REIT established with the investment strategy of principally
investing, directly or indirectly, in a diversified portfolio of income-producing commercial assets
and real estate-related assets in the key growth markets of the United States.

The IPO Portfolio comprises a balanced and resilient mix of Class A and B office buildings in the CBD and suburban areas, well-served by key transportation nodes and supporting amenities.

KEY INVESTMENT HIGHLIGHTS

Keppel-KBS US REIT offers investors the opportunity to gain exposure to the attractive US office real estate sector via a publicly listed platform, backed by a distinctive portfolio of high quality, income-producing office buildings, and backed by strong Sponsors, as well as an experienced management team focused on delivering long-term sustainable distribution and total returns to Unitholders

 Dividend

Keppel-KBS US REIT offers the distribution yield for Forecast Year 2018 of 6.8% and Forecast Year 2019 of 7.2% translate to 5.8% yield growth.

Approximately 79.5% and 75.2% of Cash Rental Income for Forecast Year 2018 and Projection Year 2019 is derived from existing leases, respectively. Furthermore, at least 75% of interest expense will be hedged.

Assumption to achieve 5.8% growth ,
The distribution yield growth from Forecast Year 2018 to Projection Year 2019 of 5.8% is underpinned by built-in rental escalations, positive rental reversion opportunities and potential increase in IPO Portfolio occupancy level.

Organic growth opportunity to growth the dividend
Built-in rental escalations,
Approximately 97.5% of existing leases by Cash Rental Income and 97.5% of existing leases by NLA have built-in rental escalations. The rental escalations generally range from 2.0% to 3.0%.

Positive rental reversion opportunities,
The IPO Portfolio has a WALE by NLA as at 30 June 2017 of 3.7 years, with below market average rents for expiring leases. This offers the opportunity to lease expiring space at potentially higher
market rent rates.

Lease up opportunities, 
Several of the Properties have the ability to lease up, given that their current occupancy rates are below the market average, and hence lead to potential growth in rental income

Lease Profile

Around 15% of the lease will be up for renewal for each year

Income/Revenue Breakdown

Well distribute tenant concentration with top tenant contribute not more than 22.3% by cash rental income

Gearing

As at the Listing Date, Keppel-KBS US REIT will have total borrowings of US$289.4 million, 100.0% of which is unsecured. This translates to an Aggregate Leverage of approximately 36.0%, providing an adequate debt headroom of approximately US$131.6 million to fund Keppel-KBS US REIT’s future growth

Properties

List of the 11 Properties and the statistic to show the properties are located in the growth area compare to the national average

Fees

Management Fees
Base Fees,
10% per annum of Keppel-KBS US REIT’s Annual Distributable Income (as defined in the Trust Deed and calculated before accounting for the Base Fee and the Performance Fee).

Performance Fee,
25.0% of the difference in DPU in a financial year with the DPU in the preceding financial year (calculated before accounting for the Performance Fee but after accounting for the Base Fee in each financial year) multiplied by the weighted average number of Units in issue for such financial year.

The Performance Fee is payable if the DPU in any financial year exceeds the DPU in the preceding
financial year, notwithstanding that the DPU in the financial year where the Performance Fee is payable may be less than the DPU in any preceding financial year
.
For the avoidance of doubt, where the DPU in a financial year is less than the DPU in any preceding
financial year, the Manager shall not be required to return any Performance Fee paid to it in any preceding financial year.

Trustee’s Fee ,
0.015% per annum of the value of the Deposited Property, subject to a minimum amount of S$14,000 per month, excluding out-of-pocket expenses and GST.

Property Management Fee,
Charged based on gross revenue income and ranges from 1.5% to 3.0% of the gross revenue income

Others
1% Acquisition Fee
0.5% Divestment Fee
3% of Project Cost Development Management Fee

Unit Lock up period

100% : 6 months from the date of date of issuance
50% :12 months from the date of issuance