Keppel Pacific Oak US REIT - RHB Invest 2023-10-19: Delivering Despite The Odds; BUY

• Key market concerns remain around the extent of potential valuation decline and gearing impact – management expects this to be contained in high-single digits, considering Keppel Pacific Oak US REIT (SGX:CMOU)’s differentiated market portfolio and healthy operational numbers.
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3Q estimated DPU of US$0.013

• Keppel Pacific Oak US REIT's reported 3Q estimated DPU of US$0.013 (flat q-o-q, -11% y-o-y) as adjusted NPI growth of +5% y-o-y was offset by higher financing costs. See Keppel Pacific Oak US REIT's distribution history.
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• Despite a highly volatile US office market environment, we believe a gearing breach is unlikely for now, given its minimal tenant concentration risks – with none of its Top-10 tenant leases expiring in the next two years – and its portfolio focus on non-gateway key growth markets, which have comparatively fared much better.
• Our base case expectation is for a 10% decline in valuation by end-2023, with the worst case at 15%, which should still keep gearing at 42-46% levels.

Portfolio occupancy improved 0.6ppts q-o-q

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Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2023-10-19 SGinvestors.io

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