Is Keppel Pacific Oak US REIT A Good Buy In 2025? [Fundamental Analysis]

In this article, we'll conduct a fundamental analysis and review of Keppel Pacific Oak US REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To March 25

Business Description

Keppel Pacific Oak US REIT (KORE) is an office REIT that was listed in 2017 and owns office properties in the United States.

What I Like About KORE:

Low tenant concentration risk as KORE has a well-distributed and resilient tenant profile (Figure 13)
Well spread out lease expiry profile with a decent level of weighted average lease expiry (Figure 12)
The management has adopted suitable measures and managed their portfolio well during this crisis. This has helped preserve the value of the REIT instead of having to dispose of assets at deep discounts.

What I Do Not Like About KORE:

Unlike Singapore offices, US office requires a substantial amount of capital to build out and lease office space because the landlords are responsible for the funding of tenant improvements, leasing commission and other costs.

Updates From Recent Performance (FY 2024)

General Comments:

The weighted average cost of debt increased by 0.33% to 4.45% while the aggregate leverage increased by 0.5% to 43.70%.
DPU from operations decreased by 8.80% due to lower gross income, higher operating expenses and finance costs.
The occupancy rate remained relatively unchanged at 90% (Previously 90.3%), which is well above the industry average of 86.2%.
As of FY2024, distributions are still suspended until FY2025, that is to be paid in 1H 2026.
Portfolio Valuations and Net Asset Value per unit remained relatively unchanged (Figure 9)

Positive Headwinds:

Office leasing volume and demand have nearly returned to pre-pandemic levels. With the “return-to-office” mandate combined with an overall decline in office spaces, further recovery in occupancy is expected.
The cost of borrowing should have peaked and is expected to come back down moving forward. This should provide some relief to the bottom line.

Negative Headwinds:

Tenants have become and are increasingly more selective and efficient in how they utilize space. To adapt to the market demands, KORE will have to utilize much of the income withheld for Asset Enhancements Initiatives to ensure that their offices meet the needs of their tenants to ensure resilience in portfolio occupancy.
Softening economic data and souring consumer and business sentiment may result in further economic headwinds that may dampen the demand for office spaces as businesses become more cost cautious.

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