Is Keppel Office Real Estate (KORE) US REIT A Good Buy In 2026? [Fundamental Analysis]

Daniel Lee
5 days ago
5 min read

In this article, we'll conduct a fundamental analysis and review of Keppel Pacific Oak US REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Business Description

Keppel Pacific Oak US REIT (KORE) is an office REIT that was listed in 2017 and owns office properties in the United States.

What I Like About KORE:

Well spread-out lease expiry profile with a decent level of weighted average lease expiry and low tenant concentration.
The management has adopted suitable measures and managed their portfolio well during this crisis. This has helped preserve the value of the REIT instead of having to dispose of assets at deep discounts.

What I Do Not Like About KORE:

Unlike Singapore offices, US office requires a substantial amount of capital to build out and lease office space because the landlords are responsible for the funding of tenant improvements, leasing commission and other costs. In the current market where vacancies are high, the ongoing CAPEX has become a requirement to sustain occupancy rate which eats into the operating cashflow until the situation gets better.

Updates From Recent Performance (FY 2025)

General Comments:

Dividends have resumed at USD0.25 cents for the period 1 July to 31^st December 2025. This reflects an annualized yield of 2.12% and a payout ratio of 11.3% of 2H income.
DPU from operations decreased by 9.65% due to higher finance and trust related costs. Outside of that, the top performance remained resilient with gross revenue and net property income growing by 2.5% and 3% as a result of higher non-cash amortization, lease incentives and higher recoveries income in FY2025.
The occupancy rate weakened to 87.2% (Previously 90%), which is well above the industry average of 85.9% which also saw a drop from the previous year’s figure of 86.2%.
Portfolio Valuations and Net Asset Value per unit remained relatively unchanged (Figure 9)

Positive Headwinds:

Negative Headwinds:

Tenants have become and are increasingly more selective and efficient in how they utilize space. To adapt to the market demands, KORE will have to utilize much of the income withheld for Asset Enhancements Initiatives to ensure that their offices meet the needs of their tenants to ensure resilience in portfolio occupancy. (Figure 7)
oftening economic data and souring consumer and business sentiment may result in further economic headwinds that may dampen the demand for office spaces as businesses become more cost-conscious.
Higher energy prices may result in higher operating expenses in FY2026.

KORE’s Biggest Problem That Is Pulling Them Down

AEI Capital Expenditure IS EFFECTIVELY Maintenance Capital Expenditure

The biggest problem that KORE is facing right now is the high levels of capital expenditure that the management must dish out on a recurring basis just to keep occupancy rate where they are today while preventing a loss in property valuation.

As a result, even though their operating cashflow is positive, the majority of the cashflow itself is directed at keeping the operations afloat which unfortunately is a combination of the fact that US offices usually requires higher outflow by the landlord as compared to the Singapore office and the current high vacancy situation which grants the bargaining power largely to the tenants.

US office is genuinely more landlord-CAPEX-intensive than Singapore office. The mechanics:

Cost item	US office (typical)	Singapore office (typical)
Tenant Improvements (TI)	Landlord-funded; US$30–100+/sf depending on market and lease term	Tenant funds own fit-out from shell condition
Leasing Commissions (LC)	Landlord pays 4–6% of total lease value (tenant rep + landlord rep brokers)	Smaller, often split differently
Free rent / abatement	Commonly 2–6 months on multi-year leases	Limited fitting-out periods only
Amenities (post-2020)	Landlord-funded gyms, lounges, conference centres — competitive necessity	Building-level, far less landlord burden
Typical lease length	5–10 years (TI amortised, but bigger upfront cash hit)	3–5 years more common

As a result, one would come to realize that despite having a resilient operating performance, KORE remains unable to sustain the previous levels of their dividend distributions as much of these cashflow has to be spent on “uplifting” the existing properties to compete in the current market and retain/capture demand.

Year	Free CF after CAPEX	Distributions Paid	Coverage	Shortfall
2019	38,304	60,603	63.2%	(22,299)
2020	48,280	39,010	123.8%	+9,270
2021	55,428	65,519	84.6%	(10,091)
2022	35,744	57,959	61.7%	(22,215)
2023	37,599	55,148	68.2%	(17,549)
2024	22,072	0 (suspended)	N/A	+22,072
2025	31,598	0 (suspended)	N/A	+31,598

Under normal operating conditions, the capital expenditures for Asset Enhancement Initiatives will be financed by debt of which the results of such ventures will be captured by higher rental reversions and property valuation, but in a market where the vacancy levels are high and cap rates are being expanded, KORE’s model fail completely as the “Asset Enhancement Initiatives” are in reality

something that is necessary just to sustain current occupancy rate
Incapable of generating a return – in the form of higher rental rates or valuation uplift. Rent reversion and net asset value have been on a decline despite millions being poured into “AEI” (See Figure 1 & 3)
eats up most of the free cash flow generated from operation which leaves very little to unitholders

Given that the nature of the “AEIs” are now something that is effectively a necessary recurring expense, if we were to factor that and deduct it from the DPU from operations, what we will be left with is a negative figure that coincides with why the management has to suspend dividends regardless of what their original messaging of being conservative is.

Adjusted DPU from Operations Less CAPEX

Year	2020	2021	2022	2023	2024	2025
DPU	2.79	2.75	1.46	0.91	-0.57	-0.22

Unless this situation resolves itself, it is unlikely that KORE will be able to recover back to its previous levels.

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