Keppel Pacific Oak US REIT (SGX: CMOU), or KORE, is an office REIT with properties located in key growth markets in the US. KORE’s portfolio consists of 12 freehold properties across seven key growth markets in North America. These properties take up a combined 4.3 million square feet of space. Note that KORE used to be known as “Keppel-KBS US REIT” but has recently changed its name.
Last week, KORE announced the acquisition of One Twenty Five, an office complex consisting of two Class A buildings – 125 East John Carpenter and 5100 North O’Connor, for US$101.5 million. The property is located in Dallas, Texas, has a freehold land tenure, and has a net lettable area of around 445,000 square feet. Committed occupancy is 95.5% as of 30 June 2019, and key tenants in the complex include US Homeland Security and United Capital Financial Advisors.
The total acquisition cost is estimated to be around US$105.2 million and will be financed by a private placement of shares to institutional investors, debt financing, and internal cash sources. Here are four reasons why I believe this acquisition is a great one for the REIT.
1. Potential rental upside
The property’s current in-place rent stands at US$25.72 per square foot (psf), which is 10.7% below the market rental rate of US$28.80 psf. This allows the property to have good organic rental growth potential once leases for the property are renewed. Also, strong leasing demand in the Las Colinas area (where the properties are located) means that rents are projected to increase to US$32.57 psf by 2024.
2. Enlarged AUM and diversification
The acquisition will grow KORE’s portfolio further, from the current assets under management (AUM) of US$1.09 billion to US$1.19 billion, a 9.3% increase. The portfolio will also undergo further diversification as Dallas will be added as an additional US city in addition to the existing seven. The tenant base will also be increased by 4.3% to 486 tenants, while the top 10 tenant concentration exposure is reduced from 20.4% to 18.5%.
3. Improved portfolio metrics
KORE’s portfolio metrics will also increase after the acquisition, with the occupancy rate rising by 0.2% from 94% to 94.2%, and aggregate leverage falling slightly from 35.1% to 35.0%.
4. Increase in DPU
The acquisition is projected to increase KORE’s distribution per unit (DPU) by 1% from 6.22 US cents to 6.28 US cents. At the last traded price of US$0.75, KORE will have a forward distribution yield of 8.4%.
Multiple benefits accompanied by a stronger portfolio
This acquisition brings numerous benefits to investors in KORE and also boosts its portfolio size and diversifies the portfolio across eight cities, up from seven. Completion is expected in Q4 2019 but is subject to an extraordinary general meeting to be held to approve the transaction.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.