Keppel PacificOak US REIT- 15% Dividend Yielder for a Keppel-Related Company

Recently, I have started to purchase Keppel PacificOak US REIT (KORE). Thought it will be good to document a company overview and why I feel it is a good investment given its current prices.

Summary

• Potential 15% dividend yielder at current share price of 29 cents
• Evenly distributed debt maturity profile
• Prudent management moves and Healthy leverage ratio of 38.7%

Overview of Business

Similar to Manulife and PRIME, KORE operates a portfoilo of office buildings in US which it leases out. Its properties are all freehold in nature and spread across multiple US cities. There is some concentration with about 43.5% of income coming from one city, Seattle. This is a risk investors have to evaluate as there is a heavier reliance on the fortunes of one city.

Otherwise, KORE looks okay and given its properties are freehold in nature, its almost a perpatual 15% (based on its annualised US$47 million in distributable income generated)

Debt Profile

This is where the REIT stands out. Unlike Manulife or PRIME whose lenders are US based, KORE has clarified that it borrows from a club of local/foreign banks with presence in Singapore. If i were to venture a guess, Keppel probably has DBS as one of the lenders.

The weighted average interest rate of KORE is now 3.96% and its debts are evenly spread for maturity across 2024 to 2028. This is in contrast to PRIME where almost all of its debts are due in a few years time. It can be seen that the maturity of KORE's debt profile is 3.4 years, which is significantly longer than PRIME's of 2.5 years. A large proportion of its debts is at fixed rates.

Hence there is much buffer by KORE against the risk of interest rate hikes.

Prudent Management Actions

Over the past months, KORE's REIT manager has decided to (i) take the base fee in cash which prevents severe dilution to unitholders as its share prices are now low and (ii) only distribute 90% of avaliable income in order to keep for buffer and loan repayment.

To me, these are good moves. It is worth noting KORE was the only 1 of the 3 US REITS to do these. This ensures the REIT is well capitalised and eliminates much rumours of a cash call (worth noting its leverage ratio is 38.7%, well below the 50% MAS leverage regulatory limit)

All in all, given these 3 points and with the sell down in prices, a 15% dividend yielding machine is enticing.

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Disclaimer: The publication of my posts is solely for informational purposes and is not to be construed as a solicitation or financial advice as I am not a certified financial adviser. My analysis on companies covered are not an offer to buy or sell any stocks and I encourage readers to do your own due diligence before investing.