SINGAPORE (Apr 17): DBS Group Research is maintaining its bullish stance on Keppel-KBS US REIT (Kore) on the stock’s positive outlook.
In particular, Kore has guided that it could achieve on average high single-digit rental reversions for leases due for renewal for the remainder of the year.
With Kore trading at attractive valuations, 10% discount to book value during an office upturn and high 8.3% yield, it remains one of DBS’s top picks in the S-REIT market.
“We retain our ‘buy’ call with a target price of US$0.80,” says DBS lead analyst Mervin Song in a Wednesday report.
In 1Q19, Kore delivered 1Q19 DPU of 1.50 US cents, representing 25% of DBS’s FY19F DPU.
See: Keppel-KBS US REIT falls short of IPO forecast with 1Q DPU of 1.50 US cents
Although the market has been disappointed over the rights issue conducted in late 2018 to fund the recent acquisitions of Westpark portfolio and Maitland Promenade I, 1Q19 DPU rose 6% y-o-y after adjusting for the rights issue. This should allay some market concerns, says DBS.
The two acquisitions and prior positive rental reversions translated into 1Q19 revenue and NPI both jumping 24% y-o-y to US$29.4 million and US$18.2 million respectively.
Overall portfolio occupancy remains healthy at 92.1%, up from 91.6% at end 4Q18, driven by marginal increases across the portfolio.
Over the quarter, Kore reported 10% positive rental reversions anchored by 13-16% increases from leases renewed at its Seattle properties.
Following the 100% debt-funded acquisition of Maitland Promenade I in January 2019, gearing rose to 38.1% from 35.1% at the end of 4Q18.
On the back of higher units on issue, NAV per unit fell marginally to US$0.78 from US$0.80.
As at 11.22am, units in Kore are up 2 cents at 74 US cents or FY21F dividend yield of 8.1%.
