RHB has maintained its “buy” call for Keppel Pacific Oak US REIT (KORE) with a target price of US$0.80 (SG$1.10) on its “strong” set of 1H20 results, and distribution per unit (DPU) coming ahead of the brokerage’s expectations.
On July 22, KORE reported 2Q20 DPU of 1.56 US cents, some 4.0% higher than its DPU of 1.50 US cents in 2Q19.
Its 1H20 DPU rose 3.3% y-o-y, which is aided by positive double-digit rental reversions from previous quarters, rental escalations, and contributions from One Twenty Five in Dallas..
Management has also reported that rental collections were at a healthy 94% for 1H20, which allows KORE to maintain their 100% payout ratio.
In 2Q, KORE signed around 92,000 leases despite the COVID-19 pandemic, resulting in occupancy improving 94.3% from 93.6% as of Dec 2019.
KORE has also reported that despite a surge of a second wave of COVID-19 cases in its markets like Texas and Florida, it hasn’t seen any spike in rent relief requests so far. Still, KORE has received rent relief requests from around 15% of its tenants by Cash Rental Income (CRI) and only 5.7% of them have been granted rent deferrals resulting in around a 2.8% economic impact.
Also, KORE has recently refinanced USD115m of IPO loans maturing in Nov 2021 at a much lower interest rate, resulting in a 15bps reduction in overall interest costs to 3.19% pa. Therefore, currently they have no long-term refinancing requirements, and all of its loans have a healthy cover of 4.4x.
While a second wave of the COVID-19 pandemic can easily put the US economy, along with KORE, at risk, RHB analyst Vijay Natarajan has made no changes to KORE’s earnings estimates.
Units in KORE closed flat at 71.5 US cents.
