KEPPEL PACIFIC OAK US REIT (SGX:CMOU)
Keppel Pacific Oak US REIT 3Q21 - Benefitting From In-Migration And Growth At Magnet Cities
- Growth in Keppel Pacific Oak US REIT's NPI of 5.6% y-o-y in 3Q21 was attributed to the acquisition of Bridge Crossing in Nashville and 105 Edgeview in Denver, which was completed on 20 Aug 21, and better performance from existing properties.
- Keppel Pacific Oak US REIT provides a unique exposure to in-migration and growth at magnet cities. Growth in rents for growth markets has bottomed and reversed to positive 0.2% in Sep 21.
- Keppel Pacific Oak US REIT provides an attractive 2021 distribution yield at 8%. Maintain BUY.
Keppel Pacific Oak US REIT's 3Q21 Updates
- Keppel Pacific Oak US REIT (SGX:CMOU) reported distributable income of US$15.9m (+8.4% y-o-y), which is in line with our expectations.
- Two newly-acquired properties boosted growth. Gross revenue and NPI grew 4.5% and 5.6% y-o-y respectively in 3Q21. Of the growth in NPI of US$1.2m y-o-y, US$0.9m (75%) was attributed to the acquisition of Bridge Crossing in Nashville and 105 Edgeview in Denver, which was completed on 20 Aug 21, and US$0.3m (25%) from better performance from existing properties.
- Magnet cities provide organic growth. Keppel Pacific Oak US REIT achieved strong positive rental reversion of 8.3% for 9M21 (1H21: 7.7%, 3Q21: 9.9%) driven by properties located in Seattle – Bellevue/Redmond and Austin. Keppel Pacific Oak US REIT signed new and renewed leases of 480,165sf in 9M21. Technology, advertising, media & information (TAMI) and professional services accounted for 40.8% and 35.1% of new leasing demand and expansions respectively. Management expects positive rental reversion to be maintained at mid-to-high single digits in 4Q21. Its portfolio provides built-in average annual rental escalation of 2.6%.
- Occupancy rate likely to have bottomed. Portfolio occupancy improved 1.3ppt q-o-q to 91.8% in 3Q21. Occupancy at Westech 360 in Austin improved significantly by 6ppt q-o-q to 76% after securing a new technology tenant. Newly-acquired Bridge Crossing at Nashville and 105 Edgeview in Denver were fully occupied.
- Healthy balance sheet. Aggregate leverage was stable at 37.7% post-acquisition of Bridge Crossing and 105 Edgeview, well within the regulatory limit of 50%. All-in cost of debt nged at 2.81%. Management is engaging banks on the refinancing of borrowings of US$145m due in Nov 22.
Rents at magnet cities have bottomed out.
- According to CoStar Bridge Crossing in Nashville and 105 Edgeview in Denver, Keppel Pacific Oak US REIT has 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.
Keppel Pacific Oak US REIT - Valuation
- Unique value proposition of growth andcost of equity: 7.0%, terminal growth: 1.5%).
- See
- 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
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https://research.uobkayhian.com/
2021-10-29
SGX Stock
Analyst Report
1.100
SAME
1.100
