UOB Kay Hian analyst Jonathan Koh is positive on Keppel Pacific Oak US REIT (KORE) as he sees the REIT being a beneficiary of the in-migration and growth at the magnet cities of Texas and Washington.
KORE owns 13 freehold office buildings and business campuses in eight markets in the US, namely Seattle – Bellevue/Redmond, Austin, Denver, Houston, Dallas, Orlando, Sacramento and Atlanta.
In his unrated report on July 8, Koh notes that the in-migration from high-tax to low-tax states have increased due to the Trump-inspired tax cut and jobs act in 2017.
To note, there are no state-level personal income taxes imposed in Texas and Washington.
Owing to the heightened levels of in-migration, the state of Texas, Washington and Florida, which accounted for 78.8% of KORE’s net property income (NPI) in the 1QFY2021 and 84.8% of KORE’s assets under management (AUM) as at December 2020.
In the Super Sun Belt and 18-hour cities, which are high-growth magnets that attract an influx of companies and people, KORE owns five properties in the three Super Sun Belt cities of Atlanta, Dallas and Houston. These five properties accounted for 20.6% of AUM as at December 2020.
In the 18-hour cities of Seattle, Austin and Denver, KORE’s six properties account for 69.1% of AUM.
See also: KORE remains 'on the right track' as US office leasing momentum improves: RHB
Furthermore, KORE’s position is boosted by the growth from technology companies in the cities of Seattle – Bellevue/Redmond, Austin and Denver, which are seeing tenants such as Amazon, Facebook, Tesla and Samsung.
Koh, too, notes that there is room for continued positive rental reversion in the REIT.
From 2018 to 2020, KORE has recorded positive rental reversion of 7.6%, 14.3% and 10.2% respectively.
It reported positive rental reversion of 5.7% in the 1QFY2021 due to higher rents in Seattle – Bellevue/Redmond.
“In-place passing rents are about 8% below asking rents due to recurrent growth in rents from Super Sun Belt and 18-hour cities,” he writes.
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KORE currently provides a distribution yield of 7.4% and yield spreads of 5.9% for the FY2021. It is trading at a P/NAV of 1.02 times.
Units in KORE closed 1 US cent higher or 1.3% up at 80.5 US cents on July 9.
Photo: KORE
