Hot stocks: US office S-Reits slump on distribution suspensions, gearing woes

PURE-PLAY US office real estate investment trusts (Reits) took a beating on Thursday (Feb 15) morning, after Keppel Pacific Oak US Reit (Kore) announced it was suspending distributions to unitholders for two years as its leverage rose to 43.2 per cent as at end-2023.

Earlier, Kore’s manager also announced the Reit’s second-half distributable income fell 10.1 per cent year on year to US$26.1 million.

All Singapore-listed US office Reits were on the downtrend in early trade.

As at 10.11 am, units of Manulife US Reit – whose distributions have also been suspended as part of its ongoing recapitalisation plan – shed US$0.003 or 5 per cent to US$0.057.

Kore was down US$0.096 or 38.4 per cent at US$0.154 after touching US$0.152 around 9.41 am, representing the Reit’s record low since its listing in November 2017.

Prime US Reit was trading US$0.03 or 20.1 per cent lower at US$0.119, recovering from an intra-day low of US$0.117, which represented a decline of US$0.032 or 21.5 per cent as at 9.50 am. Its unit price decline comes ahead of the Reit’s results announcement due in the coming week.

Based on DBS Group Research’s observations, Prime US Reit could face a “contagion risk” from Kore’s latest developments given its comparatively weaker financial metrics. Its research team also highlighted the likelihood of Prime US Reit announcing its own recapitalisation plan as the Reit’s gearing increased to 43.7 per cent as at end-Q3 FY2023, with its interest coverage ratio (ICR) at 3.2 times.

“Gearing and ICR quoted above are pre-revaluation, raising concern that thresholds could be exceeded going forward.”