Is Keppel KBS US REIT's name change more than skin-deep?

SINGAPORE (Sept 6): From Tuesday, Keppel KBS US REIT (KORE) will be known as Keppel Pacific Oak US REIT, in preparation to outsource the management of its US tech office portfolio.

KORE’s counter name on the Singapore Exchange will also be changed to KepPacOakReitUSD.

In a filing on Thursday evening, KORE says the new Pacific Oak Management Agreement, which will replace the existing KBS Management Agreement, will substantially be on the same terms as the preceding one.

Among them, the manager’s board of directors and senior management will remain unchanged. New manager Pacific Oak Capital Advisors will also employ the team that currently provides asset management services under the KBS Management Agreement.

David Snyder, CEO and CIO of KORE’s manager, says, “While our name has changed, it is business as usual for Keppel Pacific Oak US REIT, with no impact to our day-to-day operations. Our strategy and focus for the REIT remains unchanged, and we will continue to invest in key growth markets of the US with favourable economic and office fundamentals that are above the national average.”

Following the announcment, analysts agree the changes in name and trust structure are more cosmetic in nature, and should not have any operational impact. However, RHB Research says the reorganisation could be a strategic move to set the REIT apart from its competitors.

In a Sept 6 report, RHB analyst Vijay Natarajan says, “In our view, the impending reorganisation will help investors draw a clear distinction between KORE and its peer, Prime US REIT,” adding that KORE will also continue to have the “first-look opportunity” over assets in the Strategic Opportunity Series for acquisitions.

To be sure, Natarajan expects KORE’s office portfolio, which mainly focuses on US technology hubs, to stay resilient and continue to outperform the broader market, despite concerns over rising US-China trade tensions.

The REIT’s portfolio average rent of leases expiring in 2019-2021 are in the US$22-22.50 range, about 15% below the weighted average asking rents of US$26 psf. RHB expects high-single digit rental reversions for about 35% of portfolio leases by cash rental income due for renewal up till 2021.

In addition, KORE is likely to benefit from the potential upside from a rollback in tax pending the finalisation of the proposed US tax regulations announced in December 2018. When completed, the regulations will lead to additional tax savings of about 2%.

Finally, management has guided for a potential US$100 million ($138.4 million) in acquisitions in the later part of the year. Potential target locations include sub markets of key growth cities like Austin, Denver, Salt Lake City, Charlotte and North Carolina – which boast attractive office capitalisation rates of 6-7%.

However, Natarajan says REIT’s limited debt headroom could lead to funding via a combination of debt and equity placements and preferential offerings.

RHB is maintaining its “buy” call on Keppel Pacific Oak US REIT with a target price of 88 US cents.

As at 11.32am. units in KORE are trading flat at 74 US cents, or 0.9 times book value with a FY19F dividend yield of 8.2%.