Keppel Pacific Oak US REIT Review @ 4 February 2021

Basic Profile & Key Statistics

Keppel Pacific Oak US REIT (KORE) is a pure office REIT that owns 13 properties in U.S. KORE is traded in USD.

Performance Review

Gross revenue, NPI and distributable income increased YoY by 7.7%, 6.6% and 13.4% respectively mainly due to contribution from One Twenty Five which was acquired on November 2019. Despite that, DPU increased by 4% YoY due to enlarged unitholders arising from private placement for One Twenty Five acquisition.

Rental reversion is +10.2% for FY2020.

Lease Profile

• Occupancy is slightly low at 92.3%
• WALE is moderate at 3.8 years 
• Highest lease expiry within 5 years is low at 17.1% which falls in 2023
• All properties are freehold.

Debt Profile

• Gearing ratio is moderateat 37%
• Cost of debt is high at 3.22%
• Fixed rate debt % is slightly high at 84.7%
• All debts are unsecured debt.
• WADE is moderate at 2.9 years
• Highest debt maturity within 5 years is slightly low at 28.6% which falls in 2022
• Interest coverage ratio is high at 4.7 times

Diversification Profile

• Top geographical contribution is low at 42.4% (from 2019 Annual Report)
• Top property contribution is low  at 18.7% (from 2019 Annual Report)
• Top tenant contribution is low  at 3.4%
• Top 10 tenants contribution is low at 19.7%

Key Financial Metrics

• Property yield is high at 6.5%
• Management fees over distribution is competitive at 11.3% in which unitholders receive US$ 8.85 for every dollar paid
• Distribution on capital is high at 4.7%
• Distribution margin is low at 42%

Trends

• Uptrend - DPU
• Slight Uptrend - Distribution on Capital
• Flat - Property Yield, Distribution Margin
• Slight Downtrend - NAV per Unit
• Downtrend - Interest Coverage Ratio

Relative Valuation

• Dividend Yield - Past 4 quarters DPU @ 6.23 cents / average yield @ 8.17% = US$ 0.765
• Price/NAV - NAV @ US$ 0.819 x average P/NAV @ 0.9= US$ 0.735

Author's Opinion

Favorable	Less Favorable
Well Spread Lease Expiry	High Cost of Debt
All Freehold Properties	Low Distribution Margin
100% Unsecured Debt	Interest Coverage Ratio Downtrend
High Interest Coverage Ratio
Low Top Geographical Contribution
Low Top Property Contribution
Low Top Tenant & Top 10 Tenants Contributions
High Property Yield
Competitive Management Fees
High Distribution on Capital
DPU Uptrend

KORE performance and fundamental remain sound. As per presentation, average rents are 8% below asking rents, which provide rooms for positive rental reversion as upcoming leases expire. There is a 12.9% lease expiry by GRI in this year, hopefully KORE could achieve positive rental reversion.

For more information, you could refer to:

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REIT Analysis - List of previous REIT analysis posts

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.