SINGAPORE (June 26): DBS analysts Rachel Tan and Derek Tan are maintaining their “buy” calls on Keppel Pacific Oak US REIT (KORE) with a lowered target price of 85 US cents from 90 US cents previously.
“Trading at > 8% yield and 0.9x P/NAV, we believe there is still upside with greater investor visibility and positive sentiment from re-opening of the US economy,” they write in a note dated June 23.
KORE’s inclusion into MSCI Singapore’s Small Cap Index in May has also led to a strong re-rating in its share price.
In 1Q20, KORE reported a 16% y-o-y growth in distributable income (DI) to US$14 million (S$19.5 million). The analysts have estimated KORE's DPU to be 1.54 US cents.
The REIT reported a 20% y-o-y surge in revenue to US$35 million and a 15% y-o-y increase in net property income (NPI) to US$21 million for the same quarter, due to contributions from One Twenty Five, an office complex in Dallas, US. One Twenty Five was acquired by the REIT in November 2019.
Portfolio occupancy remained relatively stable at 94%. Rental collections remained healthy at 90% in April, in spite of the impact of the Covid-19 outbreak. KORE’s food and beverage (F&B) tenants will be given rental assistance of around one to two months during the lockdown period.
While there are no plans to retain dividends as yet due to the healthy occupancy and collection rates, the analysts have reduced KORE’s distributable income projects by 6-8% for FY20F-FY21F due to their cautious take on the US economy.
“The key risks to our view are lower-than-expected rental income arising from loss of tenants or slower upturn in spot office rents, potential outbreak of a second wave of COVID-19 infections causing another lockdown,” they add.
As at 9.30am, units in Keppel Pacific Oak US REIT were changing hands 1 cent higher, or 1.5% up, at 69 US cents.
