He writes in his Feb 4 note: “Refinancing concerns have been addressed with successful roll-over of FY2026 loans. The US office outlook, especially for high-quality assets, has firmly turned positive with strong demand growth and limited new supply. With uncertainties slowly being lifted, we see value, with KORE trading at a distressed about 65% discount to book.”
With the REIT’s resumption of an early dividend in the 2HFY2025 representing an around 10% payout following a successful loan refinancing, KORE expects to gradually raise payouts to a stable 80% level.
For the FY2026, Natarajan has conservatively assumed a 20% payout, rising to 50% by the FY2028 and translating to an around 10% FY2028 yield.
Meanwhile, KORE is currently in the midst of terminating its US asset manager Pacific Oak Capital Advisors (POCA) and is also in late-stage negotiations with another third-party US asset manager.
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On this, Natarajan writes: “The move comes in light of Pacific Oak Strategic Opportunity REIT Inc (PCOK) pursuing a liquidation plan. KORE does not anticipate this transition to impact its operations as its entire current asset management team is expected to move to the new third-party asset manager upon completion.”
Currency, PCOK holds a stake of around 6.14% in KORE, which the analyst believes will likely be sold via a block transaction.
He adds: “KORE’s sponsor Kore Pacific Advisors, which currently holds a 50% stake in the REIT manager, remains unchanged.”
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In the US, the REIT is expecting near-term occupancy volatility with its key tenant, Meta expected to exit The Westpark Portfolio in the 1HFY2026, alongside a few other smaller known exits.
Natarajan notes that KORE “remains confident” of backfilling the space, with occupancy expected to ramp back up to a mid-to high-80% by the end of the FY2026. He writes: “Rent reversion should be flattish but tenant incentives are starting to see a reduction.”
Until mid-2027, the REIT does not face any debt maturity, with an interest cost of around 5% based on FY2026’s guidance.
The RHB analyst expects capital expenditure (capex) in the FY2026 to be similar to FY2025's US$40 million.
He concludes: “Overall portfolio valuations were flat y-o-y (excluding capex) but we expect this to improve from 2026 onwards.”
Key drivers for the REIT noted by Natarajan include a portfolio focused on growth markets with tech and healthcare tenants, the migration of tenants to sub-urban and low cost-of-living red states and limited tenant concentration risks.
On the other hand, key risks include the US economy entering a recession accompanied by high interest rates, prolonged weakness in office demand from artificial intelligence (AI) led impacts and a pullback in bank financing.
As at 3.18 pm, units in Keppel Pacific Oak REIT are trading 0.5 US cents higher at 23.5 US cents.
