Keppel Pacific Oak US REIT Review @ 9 February 2023

Basic Profile & Key Statistics

• Main Sector(s): Office
• Country(s) with Assets: United States
• No. of Properties (exclude development/associate/fund): 13

Key Indicators

Performance Highlight

Gross revenue improved slightly but NPI declined due to higher property expenses. Income available for distribution and DPU declined by more than 10% mainly due to manager elected to receive 100% of its base fee for in cash. The adjusted income available for distribution and adjusted DPU is for a like-for-like comparison should manager received the base fees in cash for 2H 2021.

Rental Reversion

Rental revision is at 3.8%.

Divestment

The divestments of  Powers Ferry was completed on 22 Dec 2022.

Sensitivity to Interest Rate

For every 0.5% increase in interest rate, DPU impact would be 0.065 cents per annum, around 1.1%.

Distribution Breakdown

• Distributable Income Breakdown:
• 97.3% from Operation
• 2.7% from Fees Payable/Paid in Units
• Distribution = 100% of Distributable Income

Related Parties Shareholding

• REIT Sponsor's Shareholding: Below median for more than 20%
• REIT Manager's Shareholding: Above median for more than 10%
• Directors of REIT Manager's Shareholding: Above median for more than 20%

Lease Profile

• Occupancy: ± 5% from median
• WALE: Below median for more than 10%
• Highest Lease Expiry within 5 Years: Below median for more than 20%; Falls in 2027
• Weighted Average Land Lease Expiry: 100% Freehold Properties

Debt Profile

• Gearing Ratio: ± 10% from median
• Cost of Debt: A ± 10% from median
• Fixed Rate Debt %: ± 10% from median
• Unsecured Debt %: 100%
• WADM: Above median for more than 20% 
• Highest Debt Maturity within 5 Years: Below median for more than 20%; Falls in 2025
• Interest Coverage Ratio: ± 10% from median

Diversification Profile

• Top Geographical Contribution: Below median for more than 20%
• Top Property Contribution: Below median for more than 10%
• Top 5 Properties' Contribution: ± 10% from median
• Top Tenant Contribution: Below median for more than 20%
• Top 10 Tenants' Contribution: Below median for more than 20%

Key Financial Metrics

• Property Yield: Above median for more than 10%
• Management Fees over Distribution: Below median for more than 20%; $ 9.35 distribution for every dollar paid 
• Distribution on Capital: Above median for more than 20%
• Distribution Margin:  Below median for more than 10%

Trends

• Flat: DPU, NAV per Unit, Occupancy, Distribution on Capital, Distribution Margin 
• Downtrend: Interest Coverage Ratio, Property Yield

Relative Valuation

• P/NAV: Below -1SD for 1y & 3y; Below -2SD for 5y
• Dividend Yield: Above average for 1y; Above +1SD for 3y & 5y

Author's Opinion

Favorable	Less Favorable
High Directors of REIT Manager's Shareholding	Low REIT Sponsor's Shareholding
Well Spread Lease Expiry	Short WALE
100% Freehold Properties	Low Distribution Margin
100% Unsecured Debt	Interest Coverage Ratio Downtrend
Long WADM	Property Yield Downtrend
Well Spread Debt Maturity
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

Performance has slightly decreased compared to the previous quarter. Meanwhile, there has been a sharp yoy decline in DPU, due to the manager elected to receive 100% of the manager base fees in cash starting in 2Q 2022.  Let' see whether this would be a normal practice moving forward.

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my own findings and should not be considered as professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.