KEPPEL PACIFIC OAK US REIT (SGX:CMOU)
Keppel Pacific Oak US REIT - Benefitting From In-migration & Growth In Magnet Cities
- Keppel Pacific Oak US REIT benefits from in-migration to Texas and Washington where there is no state-level personal income tax. Americans are also relocating to fast-growing Super Sun Belt (Atlanta, Dallas and Houston) and 18-hour (Seattle, Austin and Denver) cities, which accounted for 20.6% and 69.1% of AUM respectively, for good jobs, affordable housing and better lifestyle. The in-migration has accelerated due to the Tax Cut & Jobs Act of 2017 and the COVID-19 pandemic.
- Keppel Pacific Oak US REIT provides a distribution yield of 7.4% for FY21.
About Keppel Pacific Oak US REIT (KORE)
- Keppel Pacific Oak US REIT (SGX:CMOU) invests in a diversified portfolio of income-producing office real estate in growth cities driven by innovation and technology. It owns 13 freehold office buildings and business campuses in eight markets, namely Seattle – Bellevue/Redmond, Austin, Denver, Houston, Dallas, Orlando, Sacramento and Atlanta.
Oriented towards growth cities benefitting from in-migration.
- Americans have migrated to the South and West regions over the past 50 years. The in-migration from high-tax to low-tax states has accelerated due to the Trump-inspired Tax Cut & Jobs Act of 2017, which capped federal deduction for state and local taxes to US$10,000 per family. The change hits high-income earners very badly. The state of Texas, Washington and Florida, which accounted for 78.8% of NPI in 1Q21 and 84.8% of AUM as of Dec 20, benefit from accelerated in-migration as they have no state-level personal income tax.
Oriented towards growth from Super Sun Belt and 18-hour cities.
- Keppel Pacific Oak US REIT focuses on Super Sun Belt and 18-hour cities, which are high-growth magnets that attract the influx of companies and people due to low or no state-level taxes, highly educated workforce generated by renowned local universities, rich amenities and good infrastructure.
- Keppel Pacific Oak US REIT owns five properties in three Super Sun Belt cities of Atlanta, Dallas and Houston, which accounted for 20.6% of AUM as of Dec 20. It owns six properties in three 18-hour cities Seattle, Austin and Denver, which accounted for 69.1% of AUM as of Dec 20.
Oriented towards growth from technology companies.
- Tech hubs of Seattle - Bellevue/Redmond, Austin and Denver contributed to Tesla and Samsung Electronics, while Denver has become the “Wall Street of the West” and a fintech hub.
Keppel Pacific Oak US REIT - Valuation
Consistency in generating positive rental reversion.
- Keppel Pacific Oak US REIT recorded positive Super Sun Belt and 18-hour cities. Thus, there is room for continued positive rental reversion.
Growth from in-migration and magnet cities.
- Keppel Pacific Oak US REIT provides distribution yield of 7.4% for FY21 and 7.5% for FY22. It has a yield spread of 5.9% for FY21 and 6.0% for FY22 and trades at P/NAV of 1.02x.
Similar valuations compared to peers despite brighter growth prospects.
- Other offshore office REITs are trading at a similar average to other offshore office REITs, Keppel Pacific Oak US REIT offers brighter growth prospects due to growth from in-migration at Super Sun Belt and 18-hour cities and expansion of tech tenants.
- See
- See the 17-page PDF report attached below for complete analysis on Keppel Pacific Oak US REIT.
Share price catalysts
- Growth from Super Sun Belt and 18-hour cities driven by in-migration.
- Growth from continued positive rental reversion.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-07-09
SGX Stock
Analyst Report
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