UOB Kay Hian Private Limited
Date of Report: September 10, 2025
Keppel Pacific Oak US REIT: Navigating Office Real Estate Headwinds and Opportunities in U.S. Growth Markets

Executive Summary: Keppel Pacific Oak US REIT Faces Transition, Eyes Recovery

Keppel Pacific Oak US REIT (KORE SP) continues to navigate the challenging landscape of U.S. office real estate, balancing market headwinds with pockets of robust demand in select growth markets. The latest report highlights management’s strategic recalibration of payout ratios, operational updates across key properties, financial performance, dividend forecasts, and risk factors. With a focus on sustainable capital management and tenant engagement, KORE is positioning itself for gradual recovery, albeit with muted upside in the near term.

Portfolio Trends: Occupancy and Leasing Dynamics

• Portfolio occupancy is expected to slip to 86-88% by end-2025, mainly due to known tenant vacates totaling 174,000 sq ft across Bellevue, Denver, and Sacramento.
• Positive leasing momentum continues in Austin and Denver, with demand from smaller tech and defense-related companies.
• Headwinds persist at The Plaza Buildings in Bellevue, including the expected departure of UiPath (30,000 sq ft) in November 2025, despite healthy demand for spec suites.
• KORE is working to backfill vacated spaces and is actively engaging tenants to mitigate occupancy declines.

Geographical and Industry Diversification

KORE’s diversified portfolio spans eight U.S. growth markets, including Bellevue/Redmond, Austin, Denver, Nashville, Houston, Dallas, Orlando, and Sacramento. Its tenant base is well-distributed across technology, professional services, medical and healthcare, finance, and insurance sectors, reducing concentration risk from any single market or industry.

Financial Performance Snapshot

Dividend Payout Ratio: Gradual Restoration Planned

• KORE’s payout ratio has been recalibrated to a phased approach:
  • 2026: 25% (previously 30%)
  • 2027: 40% (previously 45%)
  • 2028: 55% (previously 60%)
  • 2029: Stabilised at 70% (previously 75%)
• This strategic move allows KORE to retain funds for capex and maintain aggregate leverage at a comfortable level.

Market Valuation and Yield Analysis

• KORE trades at a significant discount to NAV, with P/NAV at just 0.36x.
• Distribution yield is forecasted at 4.0% for 2026 and 6.5% for 2027.
• Shares are currently priced at US\$0.25, with a target price of US\$0.26, representing a modest upside of 4%.
• Market capitalization stands at US\$261.1 million, with 1,044.5 million shares issued.

Operational Highlights by Region and Property

• Austin & Denver: Strong demand from smaller companies and technology tenants. Recent expansions include CesiumAstra’s 24,000 sq ft addition in Denver.
• Bellevue (The Plaza Buildings): Spec suites are seeing healthy uptake, with upgrades planned for the lobby and amenities. However, the upcoming UiPath vacate represents a near-term challenge.
• Portfolio-wide: Expansion accounted for 17.1% of leases signed in 1H25, driven mainly by technology firms. Some tenants renewed leases ahead of schedule to lock in their office footprint.

Debt, Leverage, and Financing Outlook

• Aggregate leverage remains stable at 43.7% as of June 2025.
• Interest coverage ratio is healthy at 2.5x.
• Average cost of debt stands at 4.45%, with management expecting a rise to 5.0% by end-2025 due to the expiry of a US\$100m interest rate swap.
• Fixed interest rate borrowings have dropped to 55% of total debt. If the Fed cuts rates by 100bps in the next six months, cost of debt could moderate to 4.8% in 2H26.

Key Metrics & Financial Ratios

Expansion by Technology Tenants and Rental Trends

• KORE achieved a positive rental reversion of 3.3% in 2Q25.
• Built-in average annual rental escalations of 2.6% further enhance income stability.
• Technology companies were the main drivers of expansion, with five significant lease expansions across Denver, Bellevue, Austin, and Houston.

Capex and Financing Strategy: Ensuring Sustainability

• Unitholders approved amendments to the trust deed, granting flexibility in payout ratios to support capex requirements.
• Funds retained will help sustain maintenance and upgrades while keeping leverage and debt metrics within healthy bounds.

Risk Factors and Earnings Revision

• DPU forecasts cut by 14% for 2026 and 6% for 2027 due to lower payout ratios; partially offset by expectations of lower debt costs.
• Key risks include the pace of tenant backfilling, further interest rate volatility, and market sentiment towards U.S. office REITs.

Share Price Catalysts to Watch

• Successful replacement of vacated tenant spaces across key properties.
• Lower U.S. interest rates that could drive higher unit prices for office REITs.

Top Tenants and Debt Maturity Profile

Shareholder Structure and Recent Price Performance

• Major shareholders include Temasek Holdings (7.0%) and Hillsboro Capital (8.7%).
• Recent share price performance:
  • 1 month: +25.0%
  • 3 months: +33.7%
  • 6 months: +13.6%
  • Year-to-date: +22.0%
• 52-week high/low: US\$0.285 / US\$0.166.

Conclusion: Investment Outlook and Recommendation

KORE’s strategic focus on U.S. growth markets and active tenant engagement are positives, but the near-term outlook is tempered by occupancy headwinds, a phased restoration of dividend payout ratios, and persistent market challenges in the office sector. While trading at a steep discount to NAV and offering attractive yield prospects in the medium term, investors should remain mindful of execution risks and the impact of macroeconomic factors on U.S. office REITs. The recommendation stands at HOLD, with limited upside until occupancy and payout ratios stabilize.

About Keppel Pacific Oak US REIT

KORE is a Singapore-listed REIT investing in a diversified portfolio of income-producing office assets in U.S. growth markets, with 13 freehold buildings and business campuses across major cities. The REIT targets markets with positive economic fundamentals and strong talent inflows, supporting long-term value and resilience.

Broker Disclosures

This article is based on research by UOB Kay Hian Private Limited, a licensed financial adviser in Singapore, dated September 10, 2025. For further details regarding distribution, disclaimers, and legal responsibility, refer to the full broker disclosures.