Musing on Keppel Pacific Oak US Reit

Keppel Pacific Oak US Reit (KORE) announced suspension of dividends this week for 2H 2023 - end 2025. This is becaue they need to conserve cash for capex for office improvements and reduce debt. This caused the share price to drop sharply from $0.25 to $0.15.

As noted earlier, I sold KORE at $0.315 (missing the subsequent run-up to $0.36), as I was not comfortable with US office risks. 

Given that KORE has suspended its dividend, if I want to buy it again, I will wait for price to drop to $0.10, which is at 15% of NAV. The lower price is to compensate for the lack of dividends and the US offices risk. 

Nonethless, I have switched to avoiding companies in net debt lately, after reading 'What I learn from Investing from Darwin'. The book is great and espouses on 'avoid risk, buy quality companies and hold' based on evolution ideas. The book can be borrowed as e-book from NLB. 

Chinese Reits having non-RMB debts

I was looking at Yuexiu Reit and found that majority of its debts are not in RMB but in HKD / USD. This implies that when RMB depreciates against USD, the reit will suffer from forex losses, unless the reit has hedged against forex movements in advance. 

Yuexiu Reit's financial expenses had rose from $400mil rmb in FY2021 to $1,500mil rmb in FY2022 and the increase was mainly due to forex losses (as RMB depreciates).

I looked at Hang Lung Properties and found that it has ~70% of its debt in HKD, despite it owning large number of Chinese properties. 

Sasseur Reit (listed in SG and owns retail outlet properties in China) has 46% of its debt in USD or SGD. 

I find it strange for Chinese reits or developers with mainly Chinese properties to have large non-RMB debts. I suspect that the lower interest rates (and lower interest payments) of non-RMB debts prior 2022 has made it attractive to issue debt in non-RMB. Especially since the benefits of lower interest rates can be quantified while the forex risks cannot be easily quantified.