Among US Office S-REITs, DBS Most Bullish On KORE
USA – DBS Group Research disclosed that the yield spread of Singapore-listed real estate investment trusts (S-REITs) focusing on US office properties remains appealing despite near-term unit price overhang due to macroeconomic uncertainty, reported The Business Times on Thursday afternoon (26 May, SGT).
The research house maintained its ‘buy call’ on Keppel Pacific Oak US REIT (KORE), Prime US REIT and Manulife US REIT (MUST), but it favours the first one. In fact, DBS Group Research raised its target price on KORE from US$0.85 to US$0.86, but reduced that for the other two.
It explained that Keppel Pacific Oak US REIT is exposed to more robust office sub-markets, in addition to having a higher growth profile and lower leverage, which means it has the capability to deliver an upside surprise from its office asset purchases.
KORE has a “unique exposure” to technology lessees, with its office building situated in the tech hubs of Austin, Denver, and Seattle. These commercial properties contribute over 60 percent of the REIT’s net property income (NPI), noted DBS analysts Derek Tan and Rachel Tan.
As for Manulife US REIT, they think it’s “too cheap to ignore” as it’s trading at an enticing 9 percent yield and FY2021 price-to-net asset value of 0.9 times.
However, DBS Group Research pointed out that MUST’s unit price has underperformed its peers’, falling below the pandemic bottom in March 2020, and it has slashed its target price from US$0.88 to US$0.70.
“While MUST’s sub-markets appear to have lagged its peers, share price downside risks are possibly limited at this level,” said the research team.
As for Prime US REIT, the analysts believe that the trust will benefit from the re-opening of the US office market, and office assets purchased in FY2021 will help in providing earnings stability and future growth. However, they reduced Prime’s target price from US$1 to US$0.88.
Furthermore, DBS Group Research thinks that the overall US office market is presently at an inflection point. While it anticipates that the positive momentum during the first quarter of the year would continue, it expects the recovery to be uneven with office tenants having different needs.
“While some tenants are expanding their office footprints, there were also tenants looking to downsize, given hybrid work policies,” noted the research house, adding that the pace of recovery of the US office market could be volatile and depends on office submarkets with stronger fundamentals.