Keppel Pacific Oak US REIT Review @ 19 April 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 20% mainly due to a combination of higher interest cost and manager elected to receive 100% of its base fee in cash. The adjusted income available for distribution is for a like-for-like comparison should the manager receive the base fees in cash for 1Q 2022.

Rental Reversion

Rental revision for 1Q is at negative 6.5%.

Related Parties Shareholding

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

Lease Profile

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

Debt Profile

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

Diversification Profile

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

Key Financial Metrics

• Property Yield: Above median by 10% or more
• Management Fees over Operating Distributable Income: Below median by 20% or more; $ 9.09 distribution for every dollar paid 
• Operating Distributable Income on Capital: Above median by 20% or more
• Operating Distributable Income Margin: Below median by 10% or more
• Operating Distribution Proportion: 100%

DPU Breakdown

• TTM DPU Breakdown
• 100% from Operation

Trends

• Slight Uptrend: Operating Distributable Income Margin
• Flat: DPU from Operation, NAV per Unit, Occupancy, Operating Distributable Income on Capital
• Slight Downtrend: Property Yield
• Downtrend: Interest Coverage Ratio

Relative Valuation

• P/NAV: Below -2SD for 1y, 3y & 5y
• Dividend Yield: Above +2SD for 1y, 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	High Cost of Debt
100% Unsecured Debt	Low Operating Distributable Income Margin
Long WADM	Interest Coverage Ratio Downtrend
Well Spread Debt Maturity
Low Top Geographical Contribution
Low Top Property Contribution
Low Top Tenant & Low Top 10 Tenants' Contributions
High Property Yield
Competitive Management Fees
High Operating Distributable Income on Capital
100% Operating Distribution Proportion

Despite a slight improvement in gross revenue, distributable income for the quarter decreased by 21.2% YoY. For a like-for-like comparison where assuming manager received 100% fees in cash for 1Q 2022, the decline is stand at $1.8 mil. Out of this $1.8 mil, $0.5 million was due to a decrease in NPI, while the remainder was caused by higher interest costs. 

From the extracts, the all-in average cost of debt for the 1Q 2023 increased by 0.76 percentage points from the previous quarter, representing a 23.8% increase relative to the cost of debt in 4Q 2022, which stood at 3.2%. Nonetheless, the all-in average cost of debt is expected to stabilize as only 1.8% of debt maturity is expected in 2023 and 77.9% of the debt is fixed-rate.

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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 findings and should not be considered 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.