Prime US REIT - Maybank Kim Eng 2020-02-12: Adding Onto Growth

PRIME US REIT (SGX:OXMU) | SGinvestors.io PRIME US REIT (SGX:OXMU)

Prime US REIT - Adding Onto Growth


Upping DPUs and Target Price, upside from first deal

  • We raised DPUs for Prime US REIT (SGX:OXMU) by ~2% on its better-than-expected interim (from 1 Oct-31 Dec 2019) and maiden full-year (from 19 Jul-31 Dec 2019) results. See Prime US REIT Announcements.
  • US office market fundamentals remain strong, backed by high net absorption, specifically in its key sub-markets. We see further DPU upside from its maiden acquisition in Sacramento, at a 6.9% NPI yield and a +2.7% DPU accretion.
  • Prime US REIT remains well-leveraged towards positive US macros, with valuation undemanding at 6.9% FY20 dividend yield, both against its Singapore and US-listed peers. With 14% total return to our DDM-based target price (COE: 7.4%, LTG: 2.0%), we reiterate BUY.



Better-than-expected interim results

  • Prime US REIT's 4Q19 revenue, NPI and DPU exceeded IPO projections by +2.0%, +3.0% and +9.0% respectively, while its first full-year projections outperformed by +2.2%, +2.9%, and +7.5%. This was driven by strong net absorption in 4Q19, helped by demand from technology sector tenants.
  • Its occupancy rate dipped q-o-q from 97.0% to 95.8% as of end-Dec 2019 largely due to transitory vacancies. We believe that US demand market fundamentals remain strong against firm underlying employment growth skewed towards the financial, professional and information service sectors.
  • Prime US REIT's DPUs are well-supported – 98% of leases have pa rental escalations. See Prime US REIT Dividend History.


Maiden deal at 6.9% NPI yield, 2.7% DPU accretion

  • Prime US REIT has quickly announced its first acquisition post-IPO – Park Tower in Sacramento, California is a well-sited freehold Class A office asset, which should add 14% to its AUM. Its USD165.5m purchase is at a 2.6% discount to valuation and implies a 6.9% NPI yield. It is lower than 7.2% for Manulife US REIT (SGX:BTOU)’s recent Capitol acquisition; its leases are backed by stable government-related tenancies (34.4% of cash rental income) and we see income growth led by rising occupancies (from 92.2% currently) with its lease structures embedded with on average +2.9% pa rental escalations.


Undemanding valuations, scores well against peers






Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.10 UP 1.000



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