On Aug 22, Keppel Pacific Oak US Reit : CMOU -1.52% Management Pte Ltd non-executive and independent director Kenneth Tan Jhu Hwa acquired 450,000 units of Keppel Pacific Oak US Reit (KORE) at 65.6 US cents per unit. With a consideration of US$295,200, this increased his interest in KORE from 0.02 per cent to 0.07 per cent. Tan is currently the co-managing partner and managing director of Southern Capital Group where he oversees the fund management process and is responsible for deal generation, execution, portfolio monitoring, post-acquisition exits via trade sale and recaps.

KEPPEL Pacific Oak US Reit : CMOU -0.72% (KORE) on Wednesday (Jul 27) reported a 5.4 per cent rise in distribution income for H1 2022 to US$31.5 million from US$29.9 million a year prior.

 

Distribution per unit (DPU) for H1 however fell 4.4 per cent from US$0.0316 to US$0.0302 due to the manager taking all of their base fee in cash rather than in units. If the manager had taken their base fee in units, the DPU would have been 0.7 per cent higher.

 

Revenue for the period rose 8.4 per cent to US$74.1 million from US$68.4 million a year ago. The growth in revenue was driven by contributions from 105 Edgeview and Bridge Crossing, and higher recoverable property expenses and higher car park income as employees return to office. This was partially offset by lower rental income from leases that were not renewed in late-2021, as well as major leases in 2022 still in their rent-free period.

 

Net property income for H1 also grew in tandem, up 5.9 per cent from US$40.6 million to US$43 million.

 

KORE&rsquo s occupancy rate stands at 92 per cent as of Jun 30, with 6.4 per cent of leases by cash rental income expiring in H2. Rental reversion remained positive at 1.6 per cent for the period, with average rental collections at 99 per cent.

 

David Snyder, chief executive and chief investment officer of the manager, gave some colour to the rental reversion rate at a briefing discussing the latest financials, pointing out that the figure was pulled down significantly by one deal.

 

It relates to a deal with Terrapower, which had to take up a space at its Bellevue Technology Center property to temporarily host some of its operations while the Reit works on readying their space.

 

Excluding this particular lease, the Reit is looking at a positive rental reversion of about 3.9 per cent in H1, he said, adding that the reversion in the second quarter was &ldquo quite strong&rdquo , coming in at about 4.5 per cent.

 

In giving his outlook for rental reversions in H2, Snyder said he is &ldquo cautiously optimistic&rdquo and would be &ldquo pretty happy&rdquo with a mid-4 per cent result.

 

Asked how rent can increase when the US economy is slowing sharply, Snyder said the question might be more relevant in a typical recessionary timeframe, but the current slowdown is brought about &ldquo almost exclusively&rdquo by the Fed raising interest rates.

 

&ldquo The problem is, demand is so strong that it has driven significant inflation&hellip It is not a typical scenario where you&rsquo ve got a downturn, the economy is doing poorly. The economy is very strong, give or take what we saw with the GDP,&rdquo he said.

 

Moving forward, KORE will continue to monitor its current portfolio and seek opportunities in key growth markets in the US propelled by technology and innovation, and pursue value-accretive acquisitions that will enhance the Reit&rsquo s income resilience and long-term growth, Snyder said.

 

On the divestment front, the Reit has entered into purchase and sale agreements with external parties for the sale of its Atlanta properties, namely Powers Ferry and Northridge Center I and II. The divestments are expected to be completed by end-September, subject to the satisfaction of certain conditions.

 

Asked at the briefing if any other of its assets fit its criteria for divestment, Snyder said Iron Point in Sacramento, California is a property that KORE would be exploring the sale of &ldquo when the time is right&rdquo .

 

&ldquo At the moment, it is not the easiest time to be selling assets. A lot of transactions have been having trouble. We are pretty pleased that so far we have not seen that, with the 2 that we have under contract or are attempting to sell right now,&rdquo he said.

 

OFFICE-FOCUSED Keppel Pacific Oak US Reit (KORE) : CMOU +1.36% said its first-quarter distributable income rose 10.9 per cent to US$16.6 million, up from US$14.9 million in the same period the year before.

 

In its Q1 FY2022 business update released on Tuesday (Apr 19), the real estate investment trust&rsquo s (Reit) manager also reported that gross revenue rose 6.9 per cent to US$37 million, up from US$34.6 million a year earlier.

 

Net property income (NPI) rose 6.7 per cent to US$21.7 million, up from US$20.4 million a year ago. NPI excluding non-cash straight-line rent, lease incentives and amortisation of leasing commissions rose 7.1 per cent to US$22 million.

 

KORE&rsquo s manager attributed this to the acquisitions of Bridge Crossing in Nashville and 105 Edgeview in Denver in August 2021. As at Mar 31, 2022, KORE has a portfolio committed occupancy of 91.7 per cent.

 

Additionally, it noted that its balance sheet remains strong, with an aggregate leverage of 37.5 per cent and no long-term refinancing requirements until November 2023. As at Mar 31, 2022, cash and undrawn facilities stood at US$85.1 million.

 

As for the Reit&rsquo s exposure to a potential rise in interest rates this year, the Reit manager said that every 50 basis points increase in the London Inter-Bank Offered Rate or Secured Overnight Financing Rate would translate to a decrease of 0.062 US cents in distributions per unit per annum.

 

The manager also expressed optimism in suburban markets in the US, as more companies appear to be expanding their footprints.

 

Sun belt markets such as Austin, Houston and Dallas in the state of Texas appear to be leading the return to the workplace as compared to other gateway cities.

 

The Kastle Systems back to work barometer showed that Austin&rsquo s workplace occupancy stood at 62.4 per cent, while Chicago and Philadelphia stood at 37.8 per cent each.

 

KORE&rsquo s properties in these areas include its Bellaire Park property in Houston and One Twenty Five property in Dallas. Both have project rental growth of 1.9 per cent and 3.1 per cent respectively.

 

OFFICE-FOCUSED Keppel Pacific Oak US Reit (KORE) on Wednesday (Jan 26) posted a higher H2 distribution per unit (DPU) of 3.18 US cents, compared with 3.13 US cents a year ago, after contributions from acquired properties as well as positive rental reversions and annual rental escalations across the portfolio.

 

The DPU includes the advanced distribution of 0.64 US cent for the July 1 to Aug 5, 2021 period, which was paid out on Sep 28, 2021.

 

Distributable income for the 6 months ended Dec 31, 2021 rose 10 per cent to US$32.5 million. The increase was partly driven by the acquisitions of Bridge Crossing in Nashville, Tennessee, and 105 Edgeview in Denver, Colorado, which were completed last August.

 

Net property income rose 2.4 per cent to US$42.1 million, while gross revenue climbed 5.5 per cent to US$72.9 million.

 

Bridge Crossing and 105 Edgeview contributed about 4 months' results to H2 earnings. This was partially offset by lower non-cash straight-line rent and lease incentives from the existing portfolio.

 

Excluding non-cash income adjustments, cash rental income in the second half for the existing portfolio was similar to that for H2 2020, said KORE.

 

A total of 250,454 square feet (sq ft) of office space was committed in Q4, bringing full-year leasing to over 730,619 sq ft - equivalent to about 14.3 per cent of the total portfolio by net lettable area.

 

Portfolio committed occupancy at year-end was 91.9 per cent. Rental reversion remained positive at 6 per cent throughout 2021, driven mainly by strong rents in the technology hubs of Seattle - Bellevue/Redmond and Austin.

 

Average rental collections last year came in at about 99 per cent. As at end-2021, 35.6 per cent of KORE' s tenants operated in the sectors of technology, advertising, media and information, identified by the manager as key growth areas.

 

The weighted average lease expiry by cash rental income for KORE' s portfolio and top 10 tenants was 3.6 years and 5 years, respectively. " Tenant concentration risk remains low with the top 10 tenants accounting for only 22.6 per cent of cash rental income," said the manager.

 

KORE' s all-in average cost of debt was 2.8 per cent at year-end. Its aggregate leverage ratio was 37.2 per cent, while interest coverage ratio was 5.1 times.

 

The weighted average term to maturity (WATM) of debt was 2.8 years. As at Dec 31, 83.4 per cent of the Reit' s non-current loans have been hedged.

 

KORE secured new loan facilities of US$80 million on Jan 19. In February, the loan facilities and existing revolving credit facilities will be used to refinance a loan due in November 2022. The WATM of KORE' s debt would have been 3.2 years if the early refinancing had happened on Dec 31.

 

The manager said it will continue to focus particularly on the defensive sectors of tech and healthcare in the US, and plans to seek " high-quality assets and deliver accretive acquisitions in Super Sun Belts (Atlanta, Dallas and Houston) and 18-Hour Cities (Austin, Denver and Seattle)" .

 

" These highly sought-after states have been encountering increasing demand in the past quarter as more people are starting to move out of densely populated cities," it added.

 

Distributions for the period Aug 6 to Dec 31, 2021 will be made on Mar 31, 2022.