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KORE remains 'on the right track' as US office leasing momentum improves: RHB

Atiqah Mokhtar
Atiqah Mokhtar • 2 min read
KORE remains 'on the right track' as US office leasing momentum improves: RHB
RHB has maintained its ‘buy’ rating for the REIT with an unchanged target price of 84 US cents.
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Keppel Pacific Oak US REIT’s (KORE) recently-released quarterly update has reinforced RHB Group Research’s view that the REIT remains “on the right track”.

RHB analyst Vijay Natarajan has maintained his "buy" rating for the counter with an unchanged target price of 84 US cents ($1.11) following KORE’s 1QFY2021 ended March business update released on April 19.

“We continue to maintain our view that KORE’s under-rented and tech-focussed portfolio is well-positioned to weather market challenges,” he writes in an April 21 research note.

“Valuation remains unjustified at 0.9 times P/BV,” he adds.

Natarajan notes that KORE’s distributable income rose 3.6% y-o-y, driven by a higher adjusted NPI of 2.7% y-o-y and lower borrowing costs.

While portfolio occupancy dipped slightly by 0.7 percentage points q-o-q to 91.6%, the analyst highlights that 128,000 square feet of leases were signed, up 23% y-o-y and 5% q-o-q.

Natarajan believes the higher leases reflect the gathering pace of the US economic recovery.

He remains optimistic on the outlook for US office demand, citing a PWC survey that indicates 91% of executives and 77% of employees anticipate at least half of the office workforce will be back on-site by December.

“While physical occupancy across KORE’s assets remains low and varies across assets (with up to 50% in Texas assets) it expects more to return to work as more people get vaccinated,” he says.

He also expects KORE’s portfolio to benefit from changing demographic trends due to Covid, with more US corporations moving to less dense states such as Florida and California.

Based on management’s guidance, Natarajan notes that KORE’s in-place rents are still some8% below asking level. He expects the REIT’s positive rent reversion of 5.7% to continue in 2021 driven by rent growth in the tech markets of Seattle and Austin and inbuilt rent escalations.

In addition, the analyst is anticipating KORE to acquire up to US$200 million worth of assets in 2021 as the Covid-19 situation stabilises and acquisition opportunities become more available.

“Potential target markets other than its existing markets are key growth cities like Salt Lake City, Nashville, Charlotte, or Phoenix,” he adds.

As at 1.33pm, units in KORE are trading flat at 74 US cents.

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