THE manager of Keppel Pacific Oak US Reit (Kore) on Tuesday (Feb 4) posted an 8.8 per cent fall in distributable income to US$23.8 million for H2 ended Dec 31, from US$26.1 million in the previous corresponding period.
This brought its income available for distribution for the full year down 8.8 per cent to US$47.6 million from US$52.2 million.
The contraction in distributable income for H2 and the full year was due to lower cash net property income (NPI) and higher financing costs, said Kore’s manager.
The office-focused US real estate investment trust (Reit) did not declare any distributions for the period. It had announced previously on Feb 15, 2024, that it would suspend distributions for two years from H2 FY2023 to H2 FY2025 as part of recapitalisation plans to address capital needs and leverage concerns.
For the half year, its revenue slipped 3.7 per cent to US$72.1 million from US$74.8 million while its NPI declined 14.1 per cent to US$36.3 million from US$42.2 million.
This brought its full-year revenue down 2.9 per cent year on year to US$146.4 million from US$150.8 million and its NPI down by 9.1 per cent to US$78.3 million from US$86.1 million.
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The decline in revenue for H2 FY2024 came as rental income was lower on the year. This was primarily due to the reduction in non-cash amortisation of straight-line rent and lease incentives, as well as higher free rent resulting from timing differences in leases completed for the respective periods, the Reit’s manager said.
Additionally, the Reit experienced higher vacancies from The Plaza Buildings and Iron Point. It also received higher one-off termination fees in H2 FY2023.
Its lower NPI for H2 as compared with the year-ago period was driven by higher property expenses for H2 FY2024, which rose 9.7 per cent to US$35.8 million from US$32.6 million million due to increased costs related to repairs and maintenance, property management fees, and other property-related expenses, the manager said.
The manager said Kore’s portfolio committed occupancy as at Dec 31, 2024, stood at 90 per cent in comparison to 90.3 per cent as at Dec 31, 2023.
Its portfolio value based on an independent valuation stood relatively stable on the year at US$1.33 billion as at Dec 31, 2024. The Reit recorded a US$46.7 million net fair value loss for FY2024, after accounting for capital expenditures and tenant improvements primarily from The Plaza Buildings, Westmoor Center, Iron Point, Bellaire Park and Bellevue Technology Center.
The decline was largely due to the increase in discount rates across the portfolio, which were partially offset by higher rental rates and occupancy for certain properties.
As at end December 2024, its aggregate leverage stood at 43.7 per cent and the weighted average term to maturity of its debt was 2.4 years, the manager said.
It added that in Q4 FY2024, Kore refinanced US$20 million of loan facilities initially due in the same quarter as well as secured early refinancing of US$40 million of loan facilities originally due in Q1 FY2025.
The Reit’s portfolio weighted average lease expiry by cash rental income stood at 3.8 years.
Its rental reversion for FY2024 was negative 0.5 per cent, mainly driven by renewals at The Plaza Buildings and Westmoor Center.
Outlook
On the office leasing market, the Reit’s manager noted that companies are “establishing regular office attendance requirements in recent years”.
“Downsizing rates have fallen significantly, allowing emerging organic demand growth to drive gains for the overall market,” the manager said.
Kore’s manager said it will continue to focus on “improving leasing and capital management to maintain healthy occupancy levels and refinance loans prior to their maturity” as it executes its recapitalisation plan.
While Kore expects distributions to remain suspended through H2 of FY2025, they could re-commence at an earlier date than planned if market conditions permit, the manager said.
Units of Kore closed unchanged on Monday at US$0.24.
