Tibits I learnt from Keppel-KBS REIT AGM 2019

Sorry I was late so I didn't get a good picture :( (Thank you Solace for reserving a seat for me :) )

This AGM was surprisingly good, both investors asked good questions and management was quite open with the answers.

Interestingly, most of the crowd are perhaps at least 40 and above. Seems like quite a few retirees or soon to be retirees.

I also find some weird pleasure that the chairman and CEO is American but the CFO is Asian ^^"

So let's get on to it:

• Management considers their REIT to be rather small (~1B in market cap) and seeks to grow the AUM at 20% per annum. They have no target in mind though. I was kind of nervous when I hear that as I still remember Macarthur Cook REIT during 2008. Although the gearing limits imposed here forces gearing to be much lower (it's currently at around 38% for KORE),  this would mean more Rights Issue. At the same time, growing 20% of such a small REIT is definitely much easier, just whether the management would continue to perform.
• A reason given for growing in size was to attract institutional investors and improve liquidity, being a small REIT makes it harder for institution investors to have a position in KORE, let alone take up any private placements.
• Currently, they are looking to grow by increasing occupancy and AUM. And growth would not be solely reliant on the sponsor's pipeline but including the open market too. In fact, they are expecting to acquire a few more properties over the next few months as well (I guess I'll see a Rights Issue soon). 
• KORE chose to list in Singapore for various reasons such as:
• In their opinion, there are 3 stock exchanges in the world they considered international, US, London and Singapore. Japan was not considered because the REITs there are only Japanese operated.
• In addition, Singapore is one of the biggest REIT market in Asia
• Trend of increased interest in US Real Estate in Asia
• KORE is a rather small REIT
• Regarding the dilutive Rights Issue whether they raised capital below NAV, the management said that they weighed various options. Private placements would be rather small to be worth consideration due to lack of institutional interest, which made them having to seek the retail market which required a larger discount. During the same time, there was worries of Fed Rate Hikes and Trump's Trade War, these depressed the share prices as well. The management had to choose between grabbing the quality properties there and then or miss it. And they felt it would be better to get those properties for the long term. Those who subscribed to the rights would have benefited as well.
• However, it would be noted that the DPU forecast was missed due to dilution.
• Property Expenses is rather high at 40% of revenue but the management points out that it is a norm in the US markets, a significant portion is used for tax which there's nothing they can do about (need to look up, Ralph Block's book again if he has anything about it)
• Westmoor and West Loop South was noted to have rather poor occupancy yet holding a significant percentage of the AUM.
• CEO says he is rather focused on both to improve the situation
• Both properties require revamping and works are in progress (Westmoor needed more amenities such as gym and cafeteria, West Loop South needed a new better looking lobby, upgraded cafe and conference rooms)
• It seems like West Loop South is catering to smaller tenants, they are building move-in-ready suites, where what you see is what you get, which seems to be effective in getting rents faster. The conference rooms are as a result of smaller tenants being unable to afford the same kind of space in their own offices.
• The management commented that it is harder to get tenants to view raw spaces.
• In addition, one of the strong pull factors for suburban rents would be amenities such as food nearby.
• Houston office space is seeing increased supply coming up (which started building from the time when oil was >$100)
• Tenant Concentration at Plaza Building (the largest asset about 25% of AUM) was considered to be fine as the Seattle Bellevue area is also one of the strongest office markets. The management pointed out that various Asia tech firms are opening offices both in Silicon Valley and in the Seattle Bellevue area. There are various other big name tenants such as Tencent there.

That's all for this long post.

Hope you liked it.

If you like my tibits from this AGM? Click here to view a complete list of AGMs I have attended.