The post is to update my future direction of my growing my portfolio. To make it short, there will only be one stock I will accumulate until something changes and that is Keppel Pacific Oak REIT (KORE). Below are my explanations:
1. Strong DPU
KORE's portfolio occupancy has trended lower but on a small scale. Currently, it stands at 90.8%. While occupancy has slightly declined, overall revenue still grew as the increase in rents overcame the fall in occupancy. This shows KORE has the ability to maintain or slightly grow its revenue.
Secondly, KORE mentioned for every +50 basis points in the SOFR rate will lead to a decline of 0.066 US cents in dividends. The SOFR rate in US tracks the US Federal Reserve Rates very closely at a high correlation of almost 1. Therefore, I can assume that DPU will decline for about another 0.1 US cents. With 1H 2023 DPU at 2.5 US cents, we can expect 2H2023 DPU to be at 2.4 US cents.
This means the forward expected dividends for KORE is about 4.7-4.8 US cents on a full year basis. At 4.7 US cents and 30 US cents share price, KORE is wroth its price at 15.6% dividends
2. Resilient Portfolio Tenants
Unlike PRIME and ManuLife, KORE has not seen a vacancy of a large tenant. With a low tenant concentration, KORE does seem okay
3. Leverage Ratio has not Increased to Dangerous Levels.
KORE's Leverage ratio has remained at 38.4% and there was no sudden downward revaluation. With a huge buffer in leverage and history of no adverse portfolio revaluation, the odds of a cash call from KORE is low; unless it is purchasing a new property which is rather unwise in this climate
4. DPU Rise in the Future
Post 2023, the Fed is looking at reducing its interest rates from a 5.75% range to around 3% range. With SOFR rate (the loan peg that KORE takes) following closely to the Fed rates, we can expect about 250 basis points decline, which will lead to about US0.3 cents rise. This means KORE can become a 5 US cents dividend yielder for a full year. Such an investment can yield me a large accretive yield, if it pulls through the current US commercial office crisis.
5. Moving Away from China
One will notice I have a large holding in Alibaba and China based busineses, the purchase of KORE will help dilute it. It is a way of diversifying away.
All in all, KORE will be my main accumulator in which I will continue to add shares with the prospects of yield and capital appreciation.
What do you think of United Hampshire REIT?
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