This post will cover KORE and PRIME REIT. In recent times, these 02 REITs have posted results which shows their property portfolio are turning around. KORE has shown a slight decline in occupancy from 90.0% to 88.2%. And PRIME has maintained its occupancy at 80%.
With this, it will point to a stabilisation of their property valuation which means an unlikely scenario of breaching leverage ratio above 50%. So what remains is when will their distribution resume.
KORE Resumption will Start From FY2026 Result
As per the title; this has been confirmed by the REIT manager, what remains is the proportion of payout ratio. From the wordings, it will definitely not be 80%/90% of the distributable income because this is the end state where the REIT wants to be at.
For PRIME, while the manager has not indicated increasing its payout ratio; management call has alluded that PRIME too is looking to increase its payout ratio from its current 10%. So the question is what is the ratio.
The CAPEX Problem
Unlike the Singapore market, in USA commercial most of the tenancy improvement's cost are borne by the landlord. Therefore for every new lease/renewal, there is quite a hefty cash outlay that has to be upfront borne by the landlord.
For last year and this year, both REITs are forecasting a high CAPEX requirement of 45-50million to secure tenants to long term contract.
Operating Cashflow from Rental Growing
And to add to that, most of the new leases comes with rent free period of 3-12 months. This is why at current moment, both KORE and PRIME have reported low operating cash inflows because they are only earning about 70% of rental cash inflow from their properties.
For KORE, due to the execution of 24% of its leases in the past 18 months, it has about 11% more of its portfolio coming online for rental income, while PRIME based on presentation has 10.5% of its portfolio starting to bring rental cash in. These are important data points. For KORE, this means after most of its new leases start to bring in rent, it will have operating cash inflow of about $82 million, while PRIME is at $76 million.
Counting it Backwards (CAPEX will taper off from 2026)
Both REITs will be incurring upfront CAPEX during last year and this year due to the need to secure tenants and backfilling. However, from FY2026, the CAPEX needs should be lower. In my projection, KORE would incur about 20 million in maintenance CAPEX while PRIME should be about 15 million. This is due to the relative ages of their properties.
Expansion CAPEX should be lower because both REITs have higher occupancy rates. However, due to PRIME needing to backfill a larger vacant space and in turn needing to pay tenancy improvement, it is likely PRIME will spend USD$5 million more than KORE.
Hence in total, I assume both REITs have CAPEX needs of US$35 million for FY26.
Interest Expense
In KORE's latest annual report, it was able to refinance its new loans at slightly better margin rates. However, this was a small loan refinanced of US$50 million. That said, an advantage of KORE is its ability to secure better loan rates than KORE.
In its annual report, KORE has been paying at rates of SOFR + (1.43%-1.66%), while PRIME's is SOFR + above 2%. Both REITs have approximately the same amount of debt.
KORE has been able to Refinance Debt at Better Rates
As a result on a full year, KORE's interest expense is US$26 million, while PRIME's stands at US$36 million.
Dividend Resumption
Judging from the cashflow, KORE will have about US$20-30 million in free cashflow once most of its new leases come online + CAPEX tapers off. Hence I forecast investors can expect to see about 2 US cents (US$20 million) dividend from KORE.
For PRIME, free cashflow should remain zero or negative due to its continous higher interest expense and still high CAPEX cash outflow to backfill leases.
KORE is in a stronger position. This is because it has secured a narrower interest margin + SOFR as compared to PRIME. And the other positive for KORE is that it is in stronger sub office markets as compared to PRIME. For investors of these 2 Office REITs, higher dividends can be seen soon. But the question is what % will each of these REITs give?
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