Keppel Pacific Oak US REIT - DBS Research 2024-02-16: Down The Same Path

• Keppel Pacific Oak US REIT's announced together with its 4Q23 results, that the manager intends to suspend dividends till 2H25 and announced a recapitalisation plan with a goal to meet the leverage ratio requirements of the MAS and banks.

Overall results were in-line

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• The REIT has a weighted debt expiry profile (WADE) of 2.7 years with US$75m (or 12.5% of loans) expiring in end-2024. As of 4Q23, Keppel Pacific Oak US REIT has close to S$43.8m in cash on the balance sheet.
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• After netting financing and operational expenses, distributable income was down 10% to S$26.1m, mainly due to higher interest costs.

Key Operational Highlights

• Portfolio occupancy remained relatively stable, trending down marginally to 90.7% from 91.2%. It has commendably kept occupancy above 90% in FY23, given the challenging US office sector.
• Keppel Pacific Oak US REIT recorded FY23 rental reversions of -1.8%, mainly due to Spectrum’s renewal/expansion. Excluding Spectrum’s lease renewal, FY23 reversions were at +0.9%. 4Q23 reversions were -4.4%, mainly due to the renewal of a lease of a tenant at The Plaza Building.
• The leases expiring in FY24 (9.7% of CRI) are mainly from The Plaza Building and Westpark. Management expects some potential vacancy at The Plaza Building, which may impact occupancy, slightly reducing it to 88% in FY24, which is still at a good level given the headwinds hitting the sector.
• Physical occupancy at Keppel Pacific Oak US REIT’s properties were at 57.5% as at end-2023, remaining higher vs gateway cities’ below 50% and second tier cities’ ~50%.
• Management expects average interest costs could creep up marginally to 4.3% to 4.4%, post the early refinancing of loans due in 2024 and 2025.
• Management of Keppel Pacific Oak US REIT does not intend to cut management fees.

Suspension of distributions to build up liquidity a surprise.

• Read more at SGinvestors.io.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2024-02-16 SGinvestors.io

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