Quick and dirty for Keppel KBS Reit

Keppel KBS Reit’s share price has been on a freefall after the announcement of an impending right issue. The question that I wanted answered was, is if this price would be a good time to jump in?

Here are some details of the Issuance

  • West park Portfolio Acquisition Price: USD 93.1mil
  • Loan: USD 80mil, 5year tenure

By book value the Westpark portfolio would be the 5th largest property in the Reit’s portfolio, but due to the small size of the Reits portfolio (<USD 1bn), this relatively sizable issuance is likely to erode the face value of the Reit.

Balance Sheet figures, All Figures in (mil)

StatusAssetsLiabilityA/LSharesNAVLast PriceDisc to Bk
Prior to Acquisition8693192.72x6320.870.71517%
Post Acquisition9623992.41x8180.680.5617%

*Figures taken from presentation of Keppel KBS Reit annual report

Based on a discount to present book value, it does seem that the current price of USD 0.56 is trading at a similar level to the past book.

Income statement figures, All Figures in (mil)

StatusYTD dis Income4Q dis incomeTotal IncomeDPU
Prior to Acquisition33,5389,469143,0076.8%
Post Acquisition33,5389,942243,4805.3%
1 Assume that 4Q distribution of the Reit would remain same as 3Q
2 Assume that the Westpark portfolio would bring about a 5% increase in income per quarter

From the income statement, it is evident that the Reit is facing headwinds. Not only is the revenue falling, it’s 3Q figures are below the mean of the consolidated YTD figures. Which is likely the reason why they need to inject a new building.

The Reit’s management has also guided that for “every +/-50bps in LIBOR translates to -/+ 0.06 US cents in DPU per annum”, which does not bode well considering how interest rates are trending up in the near term.

Given that the annualized distribution yield demanded by investors prior to the acquisition was hovering at 7.5%. I would thus expect the price to continue to correct until the next set of results are unveiled.

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