Keppel Pacific Oak US REIT 3Q 2025 Update: Stable Occupancy, Positive Leasing Momentum, and US Office Market Recovery

Keppel Pacific Oak US REIT’s Early Refinancing and Surging Leasing Activity Signal Possible Turnaround for US Office S-REIT

Key Highlights for Investors

Early refinancing of 2026 debt secured, reducing near-term liquidity risk
Portfolio occupancy stable at 88.0%, outperforming US and gateway city averages
Strong leasing momentum: 9.4% of NLA leased in 9M 2025, with positive rental reversions
Distributions expected to resume for 1H 2026 (payout in 2H 2026), contingent on market stability
US office market showing first signs of stabilisation after seven years of rising vacancy

Detailed Analysis and Shareholder-Relevant Insights

1. Major Debt Refinancing Progress Reduces Risk

Keppel Pacific Oak US REIT (KORE) has taken a proactive approach to its debt maturity profile by successfully completing the refinancing of all loans due in 2025 and securing lender commitment to early refinance 59% of loans maturing in 2026. The US\$115 million refinancing, pending legal documentation, extends the REIT’s weighted average debt maturity to 2.2 years (pro forma), with 100% of loans unsecured and 64.4% of debt hedged to fixed rates. The aggregate leverage stands at 43.1%, giving some financial headroom even as the average cost of debt rises to 4.44% (all-in: 4.60%).

For investors, the successful refinancing removes a significant overhang and reduces the risk of distress or forced asset sales — a development that could positively impact share valuation and market sentiment.

2. Robust Operating Metrics and Portfolio Stability

KORE’s occupancy rate remains at a resilient 88.0%, outperforming both the US national office average (85.9%) and gateway cities (83.1%). Notably, the REIT completed 168,542 square feet of leasing in 3Q 2025 (3.5% of net lettable area), pushing the 9M 2025 tally to 449,772 sq ft (9.4% of NLA). Importantly, 59.5% of leases signed in 3Q 2025 were new or expansion leases, supporting rental income stability and future growth.

Rental reversions have been highly positive: +36.0% in 3Q 2025 and +9.6% for the first nine months. This was driven by a standout 17-year renewal with a US federal government agency at One Twenty Five (Dallas). Excluding this, reversions were still positive at 4.0% for 3Q 2025.

Key industry sectors — Technology, Advertising, Media, and Information (TAMI) — account for 42.5% of the tenant base, while tech-focused regions (Bellevue/Redmond, Austin, Denver) generate approximately 66% of net property income. The WALE (weighted average lease expiry) is a healthy 3.9 years, and the top 10 tenants contribute just 29.1% of cash rental income, reducing concentration risk.

3. Distribution Update: Payments to Resume in 2026

In line with the recapitalisation plan, KORE expects to restart distributions for 1H 2026, with payments in 2H 2026 (barring unforeseen circumstances). The initial payout ratio will be conservative but is expected to rise to a sustainable level as portfolio performance improves. This is a potentially price-sensitive development, as the absence of distributions has weighed heavily on share price and sentiment.

Investors should note the continued requirement to submit valid US tax forms to avoid withholding tax deductions when distributions resume.

4. Financial Performance and Headwinds

While gross revenue was flat year-on-year at US\$112.1 million for 9M 2025, income available for distribution fell 14.8% to US\$30.4 million due to higher finance costs, increased professional fees, and lower adjusted net property income (NPI), partly from higher free rents tied to leasing activity. The interest coverage ratio remains at a manageable 2.5x, but sensitivity analysis shows vulnerability to further increases in interest rates or decreases in EBITDA.

5. Improving US Office Market Fundamentals

There are early signs of a turnaround in the US office sector:

Net absorption surged to 6.1m sq ft in 3Q 2025 — the highest in years
Vacancy rates declined for the first time in seven years
Development pipeline has shrunk dramatically; new supply in 2026 will be just 6m sq ft (90% below post-GFC average)
Flight to quality: demand for amenitised, well-located assets is driving rental growth in select submarkets
Transaction volume (\$11.4bn in 3Q 2025) is up 45% YTD, with large deals returning

KORE’s markets, such as Dallas and Nashville, are in the bottoming or early rising phases of the rental cycle, suggesting potential upside as the market recovers.

6. Strategic Initiatives and Asset Enhancements

KORE continues to invest in asset enhancements and spec suites to attract tenants, including lobby upgrades, new tenant lounges, and expanded amenity spaces. The completion of the Greenhouse spec suite floor at The Plaza Buildings and the transformation of Iron Point’s amenity spaces are prime examples. These investments are designed to maintain occupancy and drive rental premiums as tenant preferences shift to higher-quality properties.

7. ESG and Sponsor Strength

The REIT has made progress on sustainability with an 18.3% reduction in Scope 1 and 2 emissions since 2019, a dedicated ESG board committee, and robust diversity and training policies. Strong sponsorship from Keppel and Pacific Oak brings deep expertise and alignment of interests.

Potential Share Price Catalysts & Risks

Resumption of distributions in 2026 — may drive yield-seeking investors back to the stock.
Successful refinancing — allays concerns about liquidity crunch or distressed sales, potentially supporting re-rating.
Continued leasing momentum and positive rental reversions — support income resilience and NAV preservation.
US office market recovery — KORE is well-positioned in ‘first choice’ submarkets, with potential upside.
Risks: Higher interest rates, further occupancy declines, or unexpected economic shocks could impact income and asset values.

Conclusion

KORE’s third quarter 2025 update delivers tangible progress on refinancing, resilient operational performance, and a credible pathway to distribution resumption in 2026. Coupled with early signs of a US office market recovery and strategic positioning in growth submarkets, these developments represent a potential inflection point for the REIT. Investors should closely watch for further leasing updates, finalisation of refinancing, and confirmation of distribution guidance — all of which are likely to be share price sensitive.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Past performance is not indicative of future results. Investors should conduct their own due diligence and consult their financial advisors before making investment decisions. The author and publisher accept no liability for any losses arising from reliance on this material.