OFFICE-FOCUSED Keppel Pacific Oak US Reit’s : CMOU 0%(KORE) distribution per unit fell 17.2 per cent to US$0.025 for its first half ended Jun 30 from US$0.0302 in the same period a year earlier, due to higher financing costs, rising interest rates and divestments of two of its properties in Atlanta.

Gross revenue was up 2.4 per cent to US$75.9 million for the half-year period, from US$74.1 million in the year-earlier period, the real estate investment trust’s (Reit) manager said on Wednesday (Jul 26).

Net property income grew 2 per cent on the year to US$43.9 million, from US$43 million previously, on higher performance from the other assets in KORE’s portfolio. 

Income available for distribution declined 17.2 per cent year on year to US$26.1 million from US$31.5 million previously. This was also a result of the manager choosing to receive 100 per cent of its base fee in cash for H1. 

Based on the market closing price of US$0.315 per unit as at Jun 30, Kore’s distribution yield was 16 per cent. The distribution will be paid out on Sep 29. 

In terms of leasing activity, KORE booked a total of 289,057 square feet of office space leased at a negative rental reversion of 4.6 per cent. This was skewed by a tenant’s renewal at Maitland Promenade I & II, one of the office buildings that it manages where the asking rent is significantly lower than in-place rents. Portfolio occupancy stood at 90.8 per cent as at end-June. 

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The weighted average lease expiry by cash rental income for KORE’s portfolio stands at 3.6 years.

As at end-June, about half of its tenants operate in the “growing and defensive sectors” of technology, advertising, media and information and healthcare, it said. 

Tenant concentration risk remains low, with its top 10 tenants accounting for only 23.7 per cent of cash rental income. 

KORE’s all-in average cost of debt was 3.99 per cent at the end of the half year. Its aggregate leverage ratio was 38.4 per cent, which it said provided “ample headroom” while interest coverage ratio was 3.4 times. 

“The manager implemented proactive measures to alleviate the effects of the prevailing inflationary environment. Long-term loans have been substantially hedged with floating to fixed interest rate swaps, providing a reduction in near-term exposure to rising interest rates.” 

The manager said that the migration of Americans in massive numbers to the Sun Belt and suburban cities – where KORE’s portfolio is focused – will continue. These cities are popular relocation destinations due to their low taxes and lower cost of living. 

It said: “The performance and demand differentials of the office market between gateway cities and suburban cities are expected to continue to widen.” 

“Quality office spaces in Sun Belt metros will stand out as employers seek the optimal work experience to bring employees back into the office.”

 Units of KORE closed flat at US$0.30 on Wednesday.