Keppel Pacific Oak US REIT - 2H22 Head & Shoulders Above Peers
- Keppel Pacific Oak US REIT's 2H22 DPU dropped 12.6% y-o-y to US$0.0278. Adjusting for the change in policy to pay 100% of management fees in cash, 2H22 DPU would have declined by a smaller 2.8% y-o-y.
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- Keppel Pacific Oak US REIT's share price trades at an attractive 2023 distribution yield of 9.9% and P/NAV of 0.64x (36% discount to NAV). Maintain BUY. Target Price: US$0.71.
Keppel Pacific Oak US REIT (KORE)'s 2H22 Results
- Keppel Pacific Oak US REIT (SGX:CMOU) reported 2H22 distributable income of US$29.0m (-10.6% y-o-y) and DPU of US$0.0278 (-12.6% y-o-y), which is in line with our expectations – See Keppel Pacific Oak US REIT's announcement dated 01 Feb 2023.
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- Continued growth from magnet cities. Gross revenue increased 1.4% in 2H22 with growth from the acquisition of Bridge Crossing in Nashville and 105 Edgeview in Denver (completed on 20 Aug 21), partially offset by the divestment of Northbridge Center I & II (completed on 28 Jul 22) and Powers Ferry (completed on 22 Dec 22) in Atlanta.
- Organic growth from positive reversion and rental escalation. Keppel Pacific Oak US REIT achieved positive rental reversion of 8.1% for 4Q22 driven by firmer rents in the technology hubs of Seattle - Bellevue/Redmond. New leasing demand and expansions were derived from technology, advertising, media & information (TAMI), professional services and finance & insurance. In-place passing rents are 6.1% below asking rents, underpinning organic growth from sustained positive rent reversion. Keppel Pacific Oak US REIT benefits from built-in annual rental escalation of 2.4% across its portfolio.
- Portfolio occupancy stable 92.6% as of Dec 22. Keppel Pacific Oak US REIT saw higher occupancies for Bellevue Technology Center (+1.8ppt q-o-q to 96.8%) and Westpark Portfolio (+1.1ppt q-o-q to Bellevue/Redmond, offset by lower occupancy for Iron Point in Sacramento (-10.5ppt q-o-q to 78.3%).
- In-migration supports capital values. Portfolio valuation improved by 0.2% or US$2.2m y-o-y. Capitalisation rates were mostly stable. Keppel Pacific Oak US REIT recognised fair value loss of US$39.2m after factoring in capex and tenant improvements for 2022. NAV per unit was stable at US$0.81.
- Demonstrating foresight with early refinancing. Keppel Pacific Oak US REIT secured a new loan facility of US$180m in Sep 22, which was utilised to refinance borrowings of US$130m due in Nov 23 and Jan 24 and partially repay outstanding revolving credit facility. Weighted average term to maturity is a healthy 3.6 years. It has no refinancing requirements until Nov 24.
- Resilient balance sheet. Aggregate leverage was stable at 38.2% as of Dec 22 and well within regulatory limit of 50%. All-in cost of debt was 3.2% in 2022, compared with 2.8% for 2021. 78% of Keppel Pacific Oak US REIT’s borrowings are hedged to fixed rates.
Rents at magnet cities registering faster pace of growth.
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Above is the excerpt from report by UOB Kay Hian Research.
Clients of UOB Kay Hian may be the first to access the full report in PDF @ https://www.utrade.com.sg/.
Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-02-13 2023-02-13
Previous report by UOB:
2022-10-28 Keppel Pacific Oak US REIT 3Q22 - Deeply Discounted & Pondering Share Buyback.
Price targets by 2 other brokers at Keppel Pacific Oak US REIT Target Prices.
Listing of research reports at Keppel Pacific Oak US REIT Analyst Reports.
Keppel Pacific Oak US REIT Share Price History,
Keppel Pacific Oak US REIT Announcements,
Keppel Pacific Oak US REIT Dividends & Corporate Actions,
Keppel Pacific Oak US REIT News Articles