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During its 4Q2023 results release, the Manager of Keppel Pacific Oak US REIT (‘KORE’) announced that it was voluntarily suspending dividends for 2 years as part of its recapitalisation plans. This came after it had requested to postpone the scheduled results announcement date. Both news came out of the blue and sent shockwaves to the investing community in Singapore. The damage was brutal as its unit price dropped an alarming > 60% (from USD 0.32 to USD 0.126) since these events. After studying its recapitalisation plan, I am left wondering if the Manager of Keppel Pacific Oak US REIT (SGX: CMOU) decided to kill an ant with a sledgehammer?
Why Was It Shocking?
As recent as Oct 2023 in its Presentation slides for a forum hosted by REITAS, nothing in the content indicated that a doomsday scenario was fast approaching. Instead, choice words such as “ample headroom” and factual statements such as “portfolio valuation need to fall by 23% to reach the 50% leverage limit” were expressed as shown in Diagram 1. Fair to say that anyone reading such materials would not have foreseen what’s to come just 3 months later.
Diagram 1: 3Q2023 Results Key Highlights (Source: KORE)
Even during AGM, the Board expressed confidence that it does not expect to “approach the leverage limit”. A reading of the minutes of the AGM suggested that unitholders were generally satisfied with the performance of the Manager and cognisant that the macro-economic environment was not rosy. Multiple assurances were given such as the one highlighted in Diagram 2.
Diagram 2: Extract of the 2023 AGM (Source: KORE)
Heading into the start of 2024, the share price was doing well as it rebounded to USD 0.36 over the past
