The manager of Keppel Pacific Oak US REIT (KORE) has reported a distribution per unit (DPU) of 1.43 US cents (1.98 cents) for the 2QFY2022 ended June, 9.5% y-o-y lower than the DPU of 1.58 US cents in the same period the year before.
The quarter’s DPU brings KORE’s 1HFY2022 DPU to 3.02 US cents, which also fell by 4.4% y-o-y from the DPU of 3.16 US cents in the 1HFY2021.
On a like-for-like basis, KORE’s adjusted DPU increased by 0.7% y-o-y each for both the 2QFY2022 and 1HFY2022. The adjusted DPU accounted for the REIT manager’s decision to receive 100% of its base fee for the 2QFY2022 in cash as opposed to units like the year before.
For the 1HFY2022, gross revenue increased by 8.4% y-o-y to US$74.1 million largely due to the contributions from 105 Edgeview in Denver, Colorado, and Bridge Crossing in Nashville, Tennessee, which were acquired in August 2021.
The higher gross revenue was also attributable to the higher recoverable property expenses as well as higher car park income as more employees return to the office in the US.
During the period, property expenses also increased by 11.9% y-o-y to US$31.1 million mainly due to the enlarged portfolio and higher y-o-y utilities, repairs and maintenance for the portfolio.
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Consequently, net property income (NPI) for the half-year period increased by 5.9% y-o-y to US$43.0 million.
Adjusted NPI, which excludes noncash straight-line rent, lease incentives and amortisation of leasing commissions, increased by 6.5% y-o-y to US$43.5 million.
During the half-year period, KORE recorded a fair value gain in derivatives of US$16.9 million as compared to a gain of US$5.2 million in 1H 2021 due to movement in interest rates for the respective periods.
For the 1HFY2022, distributable income increased by 5.4% y-o-y to US$31.5 million.
In the 1HFY2022, KORE committed around 368,063 sq ft of office space, which is represents some 7.3% of its total net lettable area (NLA).
As at June 30, KORE’s portfolio occupancy stood at 92.0%, with 6.3% leases by cash rental income (CRI) expiring in the 2HFY2022.
Excluding Powers Ferry and Northright Center I & II in Atlanta, Georgia, that are held-for-sale, KORE’s committed occupancy would have been 93.2%. The divestments are expected to be completed in the 3QFY2022.
“The divestment of the Atlanta assets is in line with our ongoing portfolio optimisation strategy and efforts to maintain a quality portfolio that delivers strong returns and sustainable distributions to unitholders,” says David Snyder, CEO and CIO of the manager. “KORE will continue to monitor its current portfolio and seek opportunities in key growth markets in the US propelled by technology and innovation, and pursue value accretive acquisitions that will enhance the REIT’s income resilience and long-term growth.”
As at June 30, KORE’s weighted average lease expiry (WALE) stood at 3.7 years by CRI.
KORE’s net asset value (NAV) stood at 0.83 US cents per unit as at June 30. The REIT’s aggregate leverage stood at 37.2%.
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Cash and cash equivalents as at June 30 stood at US$30.8 million.
As at June 30, KORE has 15 office properties measuring some US$1.48 billion in value.
Looking ahead, KORE sees more capital as “likely” to be placed in the Sun Belt cities, where the REIT is focused on.
“The resilient Sun Belt markets are expected to continue to benefit from the net domestic migration and the technology sector’s dynamic growth in 2022,” says the REIT in its July 27 statement.
In addition, the suburban office markets, where KORE’s key markets are located, are recovering at a faster pace as compared to gateway cities. This is seen in the stronger rental growth and vacancy reduction. As at 1QFY2022, suburban office rents saw a 0.7% increase, as compared to a 0.3% increase in downtown office markets, according to CBRE.
Unitholders will receive their DPUs on Sept 30.
Units in KORE closed 0.5 US cents lower or 0.72% down at 69 US cents on July 27.
