Analysts from UOB Kay Hian and RHB Group Research have kept their "buy" ratings and target prices unchanged for Keppel Pacific Oak US REIT (KORE) after its 3QFY2021 ended September business updates were released on Oct 27.
KORE reported a distributable income of US$15.9 million ($21.4 million), which was in line with both brokerages’ expectations.
See: KORE’s 3Q2021 income available for distribution rose 8.4% y-o-y
UOB Kay Hian analyst Jonathan Koh highlights that KORE’s net property income (NPI) grew 5.6% y-o-y, driven by the acquisition of properties in Nashville and Denver that were completed in August, as well as better performance from existing properties.
Koh views that rents at magnet cities like Seattle, Redmond and Austin have bottomed out. “According to CoStar Office Report, average growth in rents for growth markets over the past 12 months has turned around from negative 0.2% in June 2021 to positive 0.2% in Sept 2021,” he remarks.
He also flags that with the acquisition of Bridge Crossing in Nashville and 105 Edgeview in Denver, KORE now has a presence in six out of the 20 fastest-growing states in the US. “Management continues to scout for opportunities to invest in magnet cities, such as Salt Lake City in Utah and Phoenix in Arizona,” he comments.
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Koh views that KORE provides an attraction distribution yield of 8%. He has kept his “buy” rating for KORE with an unchanged target price of US$1.10.
RHB’s Vijay Natarajan has a similarly sanguine outlook on KORE, noting that it “posted another solid set of numbers” for the 3QFY2021.
“More importantly, portfolio occupancy seems to have bottomed out and leasing momentum is gathering pace with more workers seen returning to the office,” he says in an Oct 29 research note. KORE’s portfolio occupancy improved 1.3 percentage points q-o-q to 91.8%, the first q-o-q recovery since the pandemic started.
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Natarajan also highlights that rent reversions strengthened in the third quarter, with a positive rent reversion of 9.3% achieved year-to-date as of Sept 30. “Management guided that it continues to expect rent reversion to remain in the positive mid-single digits for FY2022 on the back of strengthening demand and low in-place rents,” he adds.
Given KORE’s gearing level of 37.7%, Natarajan believes there’s room for more acquisitions and redevelopment. He estimates that KORE has debt headroom of some US$200 million.
“We believe it could acquire one to two assets in the next six to 12 months in key growth cities like Salt Lake City, Nashville, Charlotte and Phoenix. It is also currently working with the authorities and design team on a new 5-storey multi-family building at The Plaza, which is intended to be constructed atop the site’s existing parking garage,” he says.
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Natarajan maintains his “buy” rating for KORE with an unchanged target price of 90 US cents.
Units in KORE closed up 0.5 US cents or 0.63% higher at 80 US cents on Nov 1.
Photo: KORE
