Public Announcement: This will be the last article covering Keppel Pacific Oak US REIT (“KORE”) till further notice. The reason is due to the uncertainty of the US commercial property market, and KORE has suspended its dividend since last year to buffer for potential leverage issues. This means that KORE currently presents itself as a high risk to reward ratio opportunity for those willing to take the risk for a recovery play. Furthermore, KORE also has a small market capitalization of USD250 million as of 7 February 2025. A small market capitalization would mean that it is easily susceptible to speculation, and investors with larger holdings may face issues liquidating their positions.
On 4 February 2025, KORE announced their full year result for FY2024. Compared to the previous financial year, there is a smaller write-down of valuations in investment properties by USD46 million for FY2024. Investors will need to assess if this is an indicator of stabilization, as noted that occupancy rate has increased this quarter.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: Financial Statements And Related Announcement::Full Yearly Results
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | No Info | No Info |
| Rating | Unfavorable | Unfavorable |
Based on the announcement on 4 February 2025, DPU was not included in the business update for FY2024. The expectation is that there will be no DPU till at least the end of 2025. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 90.0% | 88.7% |
| Rating | Unfavorable | Unfavorable |
Occupancy rate as of 31 December 2024 increased to 90.0%. This metric remains Unfavorable as it is below my expected healthy occupancy rate of 95%, though it is a good sign that there are improvements this quarter. Investors will need to monitor if the trend continues over the next few quarters.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 43.7% | 42.6% |
| Rating | Unfavorable | Unfavorable |
Gearing ratio increased to 43.7% as of 31 December 2024, with no notable changes to total borrowings. The metric remains Unfavorable. As the gearing ratio remains high, it is unlikely for management to resume dividend as they will need to withhold dividend and use the proceeds to enhance their assets, maintaining their buffer from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.6x | 2.7x |
| Rating | Neutral | Neutral |
The interest coverage remained relatively unchanged at 2.6 times as of 31 December 2024. The metric has remained Neutral as the interest coverage this quarter remain below my preference of 3.0 times. Do note that it may become Unfavorable if it continues to decrease.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.4 years | 2.3 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt remained relatively unchanged at 2.4 years as of 31 December 2024. The metric remains Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.35 | 0.33 |
| Rating | Favorable | Favorable |
The Price to Book (“P/B”) ratio currently stands at 0.35 This is computed using the closing share price of USD0.240 on 7 February 2025 and the net asset value per share of USD0.690 as of 31 December 2024.
The metric remains Favorable as we are paying below book value for its assets. This provides sufficient buffer should there be a significant write-down of valuation for its assets. However, there is a reason for it to be traded at this P/B ratio and is covered under the “Key things to note” section. This is something investors should take into consideration when looking at the P/B ratio.
As of 7 February 2025, the Market Capitalization is approximately USD250 million.
Website: Yahoo Finance: Keppel Pacific Oak US REIT (CMOU.SI)
Dividend
Based on management guidance, the dividend yield is 0.00% given that distributions are suspended. Investors will need to wait for further announcements for clarity on future plans and expected dividend payouts when the conditions improve.
Interest Rate Sensitivity
The Federal Reserve on 30 January 2025 have kept interest rates unchanged at a range of 4.25% to 4.50%. This is due to significant uncertainty in the U.S. economic landscape, with a healthy set of macroeconomic fundamentals that have changed little in recent months, but coming decisions from the Trump administration on immigration, tariffs, taxes and other areas that could prove disruptive.
Website: Fed leaves rates unchanged, sees no hurry to cut again
KORE have provided the interest rate sensitivity analysis as below. Should the interest rate change by another 1.0%, using FY2024 distributable income of USD47 million as a base, distributable income is expected to change by 4.2%.
| Change in Interest Rates | Change in Distributable Income (USD’000) | Change as % of FY2024 Distributable Income |
|---|---|---|
| 50 bps | $1,000 | 2.1% |
| 100 bps | $2,000 | 4.2% |
| 150 bps | $3,000 | 6.3% |
| 200 bps | $4,000 | 8.4% |
Tenant profile
KORE has an enlarged portfolio covering multiple trade sectors. The high quality and diverse tenant base provide resilience to the KORE portfolio across challenging events. The top 10 tenants accounted for 29.2% of KORE’s portfolio with no single tenant accounting for more than 4.0% during the period, providing income diversity to the portfolio. Furthermore, the WALE of the top 10 tenants is 4.0 years, which provides a strong income visibility as the US rides out the uncertainty.
Key things to note
Risk of property valuation write-down
The announcement on 4 February 2025 have announced a property valuation write-down of USD46 million, which represents 3.5% of the investment property valuations of USD1,326 million as of 31 December 2024. This write-down is not significant, which may be an indicator of stabilization of the US commercial market. Investors will need to monitor over the next few quarters.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Info | Unfavorable |
| Occupancy | 90.0% | Unfavorable |
| Gearing Ratio | 43.7% | Unfavorable |
| Interest Coverage | 2.6x | Neutral |
| Debt Maturity Profile | 2.4 years | Favorable |
| Price to Book Ratio | 0.35 | Favorable |
| Overall | Neutral |
Overall, the metrics remained Neutral to invest in KORE. Investors will need to monitor the financial profile of the KORE over the next few quarters for any indications of stabilization.
Background
KORE is a distinctive office REIT listed on the main board of the Singapore Exchange Securities Trading Limited (“SGX-ST”) on 9 November 2017.
KORE’s leverages its focus on the fast-growing technology, advertising, media and information (“TAMI”), as well as medical and healthcare sectors across key growth markets in the United States (“US”) and aims to be the first choice US office S-REIT providing sustainable distributions and strong total returns for Unitholders.
KORE invests in a diversified portfolio of income-producing commercial assets and real estate-related assets in key growth markets characterised by positive economic and office fundamentals that generally outpace the US national average and the average of gateway cities. These markets include the Super Sun Belt and 18-Hour Cities, which have and continue to see an accelerated influx of talent as part of The Great American Move.
KORE is managed by Keppel Pacific Oak US REIT Management Pte. Ltd., which is jointly owned by two Sponsors, Keppel Capital and KORE Pacific Advisors (“KPA”).
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Website: Keppel Pacific Oak US REIT (SGX: CMOU): 2024 Third Quarter Business Update
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