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Sunday, August 02, 2020

Keppel Pacific Oak US REIT (Previously Keppel-KBS US REIT) Analysis @ 2 August 2020

Basic Profile & Key Statistics
Keppel Pacific Oak US REIT (KORE) was listed on 9 Nov 2017. It was previously known as Keppel-KBS US REIT and subsequently renamed on 5 Sep 2019. KORE is a pure office REIT with properties in US and is traded in USD.

Lease Profile
Occupancy is healthy at 94.3%. WALE is moderate at 4.1 years. From the latest presentation, 41.5% of the lease by rental income will be expiring in 2025 and beyond without breakdown, if we consider before 2025, then the highest lease expiry of 17.2% falls in the year 2023. All of its properties are freehold. 

Debt Profile
Gearing ratio is slightly high at 37.4%. Cost of debt is high at 3.3%. Fixed debt rate is slightly high at 84.3% while 100% of debt is unsecured. Interest cover is high 4.4 times. WADE is short at 2.5 years, but KORE has announced early refinance in July, which extends the WADE to 3.4 years and reduces cost of debt to 3.19%. The highest debt maturity of 28.9% falls in the year 2022, which posts a slight concentrated debt maturity risk.

Diversification Profile
KORE invests in 13 properties which spread across 6 states. Its top geographical, top property, top tenant, and top 10 tenants contributions are 42.4%, 18.7%, 3.6% and 19.9% respectively. In which all are at a low percentage.

Key Financial Metrics
Property yield and distribution on capital are high at 6.6% and 4.6% respectively. Management fee is competitive in which shareholders received S$ 10 for every dollar paid. Distribution margin is low at 40.9%.

Related Parties Shareholding
Both sponsor and manager are holding a lesser stake than median level while directors of REIT manager are holding higher stake than median level.

Trend
Note that the actual 1Q 2018 DPU is 2.32 for period between 9 November 2017 to 31 March 2018, for a fair comparison, I have annualized it to 3 months period to around 1.547. Since listing, KORE had 2 times of equity fundraising for acquisitions, average once per year. DPU is on a slight uptrend while NAV per unit is on a slight downtrend. If only look at post rights issue on 4Q 2018, NAV per unit maintain more or less the same. Distribution margin is maintained since its listing.

Fundamental Valuation
Favorable Less Favorable
100% Freehold Properties Cost of Debt (After Refinance)
Unsecured Debt Distribution Margin
Interest Cover Ratio  
WADE (After Refinance)  
Top Geographical Contribution  
Top Property Contribution  
Top Tenant & Top 10 Tenants Contribution  
Property Yield  
Management Fees  
Distribution on Capital
From the above, could see that KORE is a well managed REIT. 

Relative Valuation
i) Average Dividend Yield
Apply past 4 quarters DPU of 6.11 cents to average value of 8.16% will get US$ 0.75. 
ii) Average Price/NAV 
Apply NAV of US$ 0.804 to average value of 0.90 will get US$ 0.725.

Author's Opinion:
In my view, KORE is a fundamentally strong REIT. For those who like to invests in US properties without buying US REIT, KORE would be an alternative. For valuation: 
i) Fundamental Intrinsic Value = (Removed)
ii) Relative Valuation - Dividend Yield = US$ 0.75
iii) Relative Valuation - Price/NAV = US$ 0.725
At the current price of US$ 0.73, it is fairly valued in terms of relative valuation. 

*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 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.

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