Keppel Pacific Oak US REIT - DBS Research 2024-08-01: Emerging From The Ashes

• Keppel Pacific Oak US REIT (SGX:CMOU) reported stable revenues in 1H24 of US$74.3mil, -2.0% y-o-y. Adjusted net property income (NPI) also dipped by a close magnitude of -1.6% y-o-y to US$42.0mil. The dip in operational performance was due to lower recoveries and carpark income.
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Distributions remained halted

• Distributions remained halted, as the manager remains in cash conversation mode, with the aim to re-invest the cash into the portfolio.
• In the quarter, Keppel Pacific Oak US REIT has also secured refinancing (or extended) its near-term debt expiring in 2024 -2025 by a year. While there was a rise in all-in interest costs to 4.56% (from 4.47%, including upfront costs).
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Our view.

• We are seeing signs of green-shoots emerging across Keppel Pacific Oak US REIT’s portfolio with occupancy rates increasing steadily to 90.7% (from 90.1% back in 1Q24). We are also seeing a general improvement and tenant take-up across most assets, with the likes of Westech 360 (Austin, Taxas) seeing close to a 6.4ppt rise in occupancy rates to 76.6% and Iron Point (Sacramento) seeing a close to 5.9% q-o-q improvement in occupancy rates.
• While rental reversions in the current half of the year is at -0.3%, we see this as a small trade-off to maintain occupancy rates and property cash flows.
• In 1H24, the manager of Keppel Pacific Oak US REIT executed close to 0.5mil sqft of space (~4% of portfolio NLA).

Upgrade to HOLD, target price US$0.21.

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Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbs.com/insightsdirect/ 2024-08-01 SGinvestors.io

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