KEPPEL PACIFIC OAK US REIT (SGX:CMOU)
Keppel Pacific Oak US REIT - Benefitting From In-migration & Growth At Magnet Cities; Initiate Coverage With Buy
- 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 Super Sun Belt (Atlanta, Dallas and Houston) and 18-hour (Seattle, Austin, Denver and Nashville) cities, which accounted for 19.0% and 71.4% of AUM respectively as of Aug 21. The in-migration has accelerated due to the Tax Cut & Jobs Act of 2017.
- Keppel Pacific Oak US REIT provides an attractive distribution yield of 8.6% for FY21. Initiate coverage with BUY. Target: US$1.10.
INITIATE COVERAGE ON 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 15 freehold office buildings and business campuses in nine markets, namely Seattle – Bellevue/Redmond, Austin, Denver, Nashville, 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 and hits high-income earners badly. The state of Florida, Tennessee, Texas and Washington, which accounted for 77.7% of pro forma 1H21 CRI and 82.7% of AUM as of Aug 21, 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 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 19.0% of AUM as of Aug 21. It owns six properties in four 18-hour cities Seattle, Austin, Denver and Nashville, which accounted for 71.4% of AUM.
- Oriented towards growth from technology companies. Tech hubs of Seattle - Bellevue/Redmond, Austin and Denver contributed 60.9% of NPI in 1H21. 35.8% of portfolio NLA is occupied by quality tenants from the high-growth technology sector (27.3% of NLA) and defensive medical & healthcare sector (8.5% of NLA) as of Jun 21. Seattle benefits from continued expansion by tech giants Amazon and Facebook, Austin has attracted investments from Tesla and Samsung Electronics, while Denver has become the “Wall Street of the West” and a fintech hub.
STOCK IMPACT
- Consistency in generating that is moderately yield-accretive. Keppel Pacific Oak US REIT’s AUM would expand 8.2% to relatively unchanged at 37.4% as of Jun 21.
VALUATION/RECOMMENDATION
- Growth from in-migration and magnet prospects. Other offshore office REITs are trading at a similar average distribution yield of 7.6% for 2021. See Keppel Pacific Oak US REIT's Dividend History.
- Keppel Pacific Oak US REIT is much more attractive compared to US-listed REITs investing in suburban office, which provides a paltry distribution yield of only 3.6%.
- See
- Keppel Pacific Oak US REIT is unique due to its focus on suburban offices in magnet cities. While distribution yield is similar 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 technology tenants.
- See the 19-page report attached below for complete analysis on Keppel Pacific Oak US REIT (SGX:CMOU).
SHARE PRICE CATALYST
- 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
|
https://research.uobkayhian.com/
2021-08-24
SGX Stock
Analyst Report
99998.000
SAME
99998.000
