<Alert!> Keppel Pacific Oak US REIT : Suspends Dividends, recapitalisation plan to build up liquidity
- Manager of KORE announced that they will be suspending dividends till end of 2025 in a proactive strategy to build up liquidity
- A recapitalisation strategy is put in place to build up liquidity and further strengthen its balance sheet
- Gearing of 43% and ICR ratio of 3.2x within MAS limits
- 2nd US REIT to suspend dividends, attention will likely turn to PRIME US REIT, whose weaker financial metrics vs KORE will mean risk to dividends too
- TP and REC on KORE under review
What has happened.
Keppel Pacific Oak US REIT (“KORE”) announced together with its 4Q23 results that the manager intends to suspend dividends till 2H25 and announced a recapitalisation plan with a goal in meeting leverage ratios within MAS and bank’s requirements. We note that overall results was in line (gearing of 43.2% post FY23 revaluation loss (vs MAS limit of 50%/banks limit of 45%), with an ICR ratio of 3.2x (>2.5x MAS floor). The REIT has a weighted debt expiry profile (“WADE”) of 2.7 years with US$75m (or 12.5% of loans) expiring in end of 2024. As of 4Q23, KORE has close to S$43.8m of cash on the balance sheet. In terms of operational results 2H23/FY23 net property income (“NPI”) was up 2.3%/2.2% y-o-y to S$42.3m/ S$84.2m. After net of financing and operational expenses, distributable income was down -10% to S$26.1m.
Our view.
Despite operational & financial metrics coming in line with estimates, we were surprised by management’s decision to suspend dividends for 2H24 and up to end of 2025, which we see to be a conservative and proactive stance to manage its financial liquidity situation. We believe that the manager is probably proactively building up further liquidity to refinance its near term debt expiry, in case there is a “funding gap” when refinancing discussion start sometime in the coming quarters. We believe that this strategy of a dividend suspension will come as a surprise to unitholders during the execution of its recapitalization plan, stock will remain under pressure in the interim. Our TP and REC under review.
As Prime US REIT will be due to sometime in the coming week, given its weaker financial metrics compared to KORE, there could be “contagion” risk impacting share price of PrimeUS REIT.
CUR | Price | Rec | Target Price | Mkt Cap | Yield | Yield | Yield | Yield | Yield | P/B | Gearing | Remarks | |
(FY21/22) | (FY22/23) | (FY23/24) | (FY24/25) | FY25/26F | |||||||||
KORE | US$ | 0.26 | UNDER REVIEW | 0.48 | 292 | 22.3% | 22.3% | 17.1% | – | – | 0.38 | 43.00% | Post Revaluation in FY23 |
MUST | US$ | 0.06 | HOLD | 0.10 | 124 | 95.2% | 84.8% | 67.9% | – | – | 0.17 | 58.30% | Post Revaluation in FY23 |
Prime | US$ | 0.16 | HOLD | 0.18 | 219 | 42.9% | 41.5% | 29.9% | 27.5% | 27.9% | 0.21 | 43.70% | Pre- Revaluation in FY23 |
42.0% | 39.7% | 30.4% | 30.4% | 30.4% | 0.23 | 48.33% |