Keppel-KBS US REIT declares 0.7% higher than forecast 3Q DPU of 1.50 US cents

PC Lee

SINGAPORE (Oct 17) The manager of Keppel-KBS US REIT has declared a 3Q18 DPU of 1.50 US cents. This is 0.7% higher than the forecast 1.49 US cents, driven by strong leasing, positive rental reversion and lower property expenses.

Gross revenue for 3Q18 was 2.0% lower than forecast at US$22.7 million ($31.2 million) than the forecast period, due mainly to an early lease termination at Westmoor Center in Denver, Colorado, in 1Q18, as well as lower recoveries income arising from lower property expenses.

However, income available for distribution to unitholders was 0.2% higher than forecast to US$9.47 million due mainly to lower property expenses and the one-off compensation income from the early lease termination that was recognised in 1Q18.

Keppel-KBS US REIT Management says the quarter saw strong leasing momentum with 134,000 sf (18 leases) committed due to steady demand for well-located office spaces in first choice submarkets. This brings portfolio committed occupancy to 90.1% as at Sept 30.

The majority of the leases signed during the quarter saw positive rental reversion, and all new leases signed have built-in average annual rental escalations of 3%. With this, 98% of the total portfolio will have built-in annual rental escalations of between 2-3%, providing organic growth visibility for the REIT.

As at Sept 30, the weighted average lease expiry3 for the portfolio and top 10 tenants was 3.8 years and 5.4 years respectively. Given the rising office rents in most of the markets where the assets are located, the well-spread lease expiry profile will provide positive upside for the REIT when expiring leases with lower rents are marked to market.

Keppel-KBS US REIT Management says the US national vacancy rate of offices remained flat at 10.2%. 12-month net absorption was 56.1 million sf, supported by stronger economic and job market growth that have kept demand for office space robust. Deliveries for the same period was 66.4 million sf and is set to peak in the next two years, with large projects coming on-stream mainly from New York and San Francisco. Meanwhile, rents recorded a 1.9% growth over the 12-month period, driven mainly by markets with strong job growth and little development activities, including Sacramento and Orange County.

Looking ahead, the manager says the REIT’s performance will continue to be supported by organic growth drivers including improved portfolio occupancies, positive rental reversions and built-in rental escalations. Meanwhile, the manager will also actively pursue opportunities through accretive acquisitions, while ensuring an optimal and nimble capital structure for growth.

Year to date, units in Keppel-KBS US REIT are down 18.7% to close at 74 cents on Wednesday.