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Monday, November 08, 2021

Keppel Pacific Oak US REIT Review @ 8 November 2021

Basic Profile & Key Statistics

Keppel Pacific Oak US REIT (KORE) is an office REIT that owns 15 properties in U.S.    

Performance Highlight

The improvement in performance is mainly due to contribution from the recent acquisition of Bridge Crossing in Nashville and 105 Edgeview in Denver and better performance from existing portfolio.

9M rental reversion is at 8.3%.


Acquisition for both Bridge Crossing and 105 Edgeview was completed on 20 August 2021.

Related Parties Shareholding

  • REIT sponsor's shareholding is low at 6.701%
  • REIT manager's shareholding is low at 0.642%
  • Directors of REIT manager's shareholding is high at 0.657%

Lease Profile

  • Occupancy is slightly low at 91.8%
  • WALE is short at 3.4 years
  • Highest lease expiry within 5 years is low at 17.9% which falls in 2023
  • All properties are freehold

Debt Profile

  • Gearing ratio is moderate at 37.7%
  • Cost of debt is high at 2.81%
  • Fixed rate debt % is high at 86%
  • All debts are unsecured debt
  • WADM is short at 2.5 years
  • Highest debt maturity within 5 years is low at 26.3% which falls in 2022
  • Interest coverage ratio is high at 5 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 11.2% in which unitholders receive S$ 8.93 for every dollar paid 
  • Distribution on capital is high at 4.6%
  • Distribution margin is low at 43.6%

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 +1SD for 1y, 3y & 5y
  • Dividend Yield - Lower -1SD for 1y; Below average for 3y; Average for 5y

Author's Opinion

 Favorable Less Favorable
Directors of REIT Manager's ShareholdingLow REIT Sponsor's Shareholding
Well Spread Lease ExpiryLow REIT Manager's Shareholding
All Freehold PropertiesShort WALE
High Fixed Rate Debt %High Cost of Debt
100% Unsecured DebtShort WADM
Well Spread Debt MaturityLow 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

KORE continues to achieve positive rental reversion and the performance has improved as well due to contribution from the recent acquisition, albeit come with an enlarged unitholder base. As the existing in-place rents are 7% below the asking rents, there is still room for organic growth.


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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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