KEPPEL Pacific Oak US Reit’s (Kore) manager said its priority will be to maximise the real estate investment trust’s (Reit) net property income (NPI) by the end of 2025 through continued investment in its portfolio, and to restart distributions for the 2026 financial year “at the highest appropriate level”.
The manager added that its goals for its recapitalisation plans include avoiding selling buildings at significant discounts to current valuations, refinancing loans due in the next two years prior to maturity, and restarting distributions earlier than planned, should market conditions allow for it.
These were spelt out at a briefing deck prepared by the manager for the Securities Investors Association (Singapore), held on the back of its shock announcement earlier this month that the Reit would suspend distributions for two years.
While unitholders will be adversely impacted by the decision, not investing in the Reit’s portfolio will “have a worse long-term effect”, the manager stressed in the deck, which was released in a bourse filing on Monday (Feb 26).
The move came as Kore’s leverage increased to 43.2 per cent in 2023 on its debt-funded capital spend and lower portfolio valuation, which was disclosed to have fallen 6.8 per cent to US$1.3 billion as at end-2023.
The Reit thus straddles close to the 45 per cent leverage level, at which banks are reluctant to lend above. The manager noted that the Monetary Authority of Singapore (MAS) and bank covenants limit Kore to 50 per cent leverage, and its decision to withhold distributions is part of proactive measures to keep leverage and interest coverage ratio “well within MAS requirements and banks’ expectations”.
The move to suspend distributions was “not an easy decision to make”, the manager added, since many unitholders rely on the income from Kore’s distributions. However, it said it will “work tirelessly” to optimise NPI, with a view to restarting distributions as early as possible.
Prior to Monday, the manager had announced zero distribution per unit (DPU) for the second half as expected. The Reit’s full-year DPU thus fell 56.9 per cent to 2.5 US cents, down from 5.8 US cents in the year-ago period.
For the second half of 2023, distributable income fell 10.1 per cent on the year to US$26.1 million, bringing the full-year figure down 13.8 per cent to US$52.2 million, from US$60.6 million in the year-ago period. Kore attributed the year’s fall to higher financing costs.
Gross revenue rose 1.3 per cent on the year to US$74.8 million for H2 FY2023, allowing the Reit to end with a 1.9 per cent rise in full-year revenue, which came in at US$150.8 million.
NPI also rose 2.3 per cent to US$42.2 million in the half year, guiding its full-year figure up 2.2 per cent to US$86.1 million.
Net asset value per unit fell to US$0.69 as at December 2023, down from US$0.81 a year earlier.
Units of Kore rose 2.3 per cent to end Monday at US$0.131, before the bourse filing.
