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Friday, July 30, 2021

Keppel Pacific Oak US REIT Review @ 30 July 2021

Basic Profile & Key Statistics

Keppel Pacific Oak US REIT (KORE) is an office REIT that owns 13 properties in U.S.    

Performance Highlight

Gross revenue and NPI decreased slightly due to lower car park income and lower recoverable property expenses. Despite that, distributable income and DPU improved slightly.

Rental reversion is +5.4% for 1H 2021.

On 28 July, KORE announced the acquisition of 2 properties in Nashville and Denver. The acquisition would be funded through a combination of debts and private placement.

The pro format DPU is 6.28 cents, which is 0.8% DPU accretion. Both acquisitions are targeted to complete by 3Q 2021.

Related Parties Shareholding

  • REIT sponsor's shareholding is low at 7.93%
  • REIT manager's shareholding is low at 0.56%
  • Directors of REIT manager's shareholding is high at 0.57%

Lease Profile

  • Occupancy is slightly low at 90.5%
  • WALE is slightly short at 3.5 years
  • Highest lease expiry within 5 years is low at 17.6% which falls in 2023
  • All properties are freehold

Debt Profile

  • Gearing ratio is moderate at 37.1%
  • Cost of debt is high at 2.82%
  • Fixed rate debt % is high at 84.7%
  • All debts are unsecured debt
  • WADM is short at 2.5 years
  • Highest debt maturity within 5 years is slightly low at 28.6% which falls in 2022
  • Interest coverage ratio is high at 4.9 times

Diversification Profile

  • Top geographical contribution is low at 38.5% 
  • Top property contribution is slightly low at 16.9%
  • Top 5 properties contribution is moderate at 61.9%
  • Top tenant contribution is low at 3.2% 
  • Top 10 tenants contribution is low at 20.2%

Key Financial Metrics

  • Property yield is high at 6.3% 
  • Management fees over distribution is low at 11.3% in which unitholders receive S$ 8.85 for every dollar paid 
  • Distribution on capital is high at 4.7%
  • Distribution margin is low at 43.2%

Trends

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

Relative Valuation

  • P/NAV - Higher than +2SD for 1y; Higher than +1SD for 3y & 5y
  • Dividend Yield - Lower than -2SD for 1y; Lower than average for 3y; Average for 5y

Author's Opinion

 Favorable Less Favorable
High Directors of REIT Manager's ShareholdingLow REIT Sponsor's Shareholding
Well Spread Lease ExpiryLow REIT Manager's Shareholding
All Freehold PropertiesHigh Cost of Debt
High Fixed Rate Debt %Short WADM
100% Unsecured DebtLow Distribution Margin
High Interest Coverage RatioInterest Coverage Ratio Downtrend
Low Top Geographical Contribution 
Low Top Tenant & Top 10 Tenants Contributions 
High Property Yield 
Competitive Management Fees 
High Distribution on Capital 
DPU Uptrend

Despite decreasing occupancy, KORE is able to increase DPU YoY, albeit only slightly. With the new acquisition, its portfolio would be more diversified and performance is expected to be improved in upcoming quarters.


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee 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 and 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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