• Keep BUY and USD0.29 TP, 43% upside. 1H financials were broadly in line. Key highlights: i) Occupancy improvements and ii) early refinancing of loans expiring in 4Q24/2025, which has substantially de-risked Keppel Pacific Oak US REIT’s profile. Management continues to adopt a prudent stance with the likelihood of early resumption of distributions (before 2026) only upon potential divestment. KORE’s share price has staged a good recovery recently, and we see some near-term volatility before the next leg of recovery upon commencement of rate cuts.

• Portfolio occupancy rose 0.4ppts QoQ to 90.7%, with occupancy improvements seen at the One Twenty Five, Iron Point, and The Westpark Portfolio. Leasing demand strengthened in 1H, with 11% of NLA signed. Demand came from diverse segments, which includes insurance, consulting, and healthcare. Around 7% of leases by rental income are due for renewal in 2H, with some of it being known vacates in 4Q. Management expects this to be backfilled, although there is likely to be a transition period. KORE expects occupancy by end 2024 to be at 86-88% levels. Rent reversion swung back into the black in 2Q at +1.2% from -1.4% in 1Q (1H:-0.3%).

• Refinanced bulk of loans expiring over the next two years. Of the USD75m in loans due for renewal in 4Q, KORE has refinanced USD30m for a 3-year term, USD25m has been extended for a year, and management is in discussions for the remaining USD20m. The REIT has also secured a 1-year extension for USD115m in loans expiring in Aug 2025 and is engaging with the banks for the remaining USD40m due next year. The revised all-in average cost of debt came in better than expectations at 4.56% pa vs an estimated 4.75% pa (it is currently at 4.47% pa) with management noting a 20-30bps expansion in margins for new loans.

• Cautious guidance on early resumption of distribution payments with management stating that any early dividend payments (before 2026) will hinge upon KORE’s ability to divest assets (likely Iron Point and 1800 West Loop, in our view) that would bring gearing lower and provide a comfortable debt cushion. Its current plan is to remain focused on the efficient deployment of withheld distribution on improving its core assets – mainly on building spec suits, tenant incentives, and upgrading amenities that will improve leasing prospects in competitive markets and maintain long-term asset value.

• No material changes and we have not factored in any distribution payments till end 2025. Our TP is pegged at 0.4x FY24F P/BV. KORE’s 3.1 ESG score is at par with the country median resulting in a 0% ESG premium/discount being added to the TP.

Source: RHB Research - 1 Aug 2024