PRIME US REIT (SGX:OXMU)
Prime US REIT - Poised For Growth
Stable quarter, eyeing deal upside
- Prime US REIT (SGX:OXMU) delivered a stable 1Q21, and like its peers, saw strong leasing momentum, albeit mostly from renewals. Improving market fundamentals should support demand recovery, with occupancies in our view, likely to bottom out in 2H21.
- Prime US REIT's DPU visibility is high, from its 4.3-year WALE, strong tenancies, and +2.0% pa growth from its AUM, currently under-rented by 6.5%. We see catalysts from improving leasing activity into 2021, and upside from acquisitions, backed by its strong balance sheet.
- Prime US REIT's valuations are compelling at 8+% FY21 DPU yield, and 35% upside to our US$1.10 DDM-based target price (COE: 8.3%, LTG: 2.0%). BUY.
Lower occupancies, assets well-placed
- Prime US REIT's revenue rose 2.5% y-o-y and 0.9% q-o-q, from higher rental income, while NPI dipped 2.0% y-o-y and 1.2% q-o-q, given full-quarter contribution from Park Tower (acquired in Feb 2020). Rental collections remained strong at 99%, even as portfolio occupancy fell slightly to 91.7% (from 92.4% in 4Q20). This was due to lower occupancies at 222 Main (from 94.9% to 90.9%) and Promenade I&II (97.5% to 93.9%), on transitory vacancies.
- Prime US REIT's properties are well-placed, with demand from financial and technology sector tenancies set to support backfilling efforts in the coming quarters.
Reversion at +8.5%, assets 6.5% under-rented
- Prime US REIT leased ~80k sf in 1Q21 at +8.5% rental reversion, versus ~59k sf in 4Q20 at +8.3% (and ~83k sf in 3Q20 at +8.9%). Long-term leases (60-84 months) at +9.5% reversion contributed 72% of activity, with 80% of these due to renewals or expansion by existing tenants in established and growth-type industries.
- Prime US REIT's DPU visibility is high, with 99.9% of leases backed by embedded rental escalations averaging +2.0% pa and supported by a 4.3-year WALE; 4.9 years for its top ten tenants at 41.0% of its cash rental income.
Strong balance sheet, scores well against peers
- Prime US REIT's leverage remains low at 33.8% (from 33.5% at end-Dec 2020), with US$290m debt headroom (at 45% limit).
- Prime US REIT ranks well against its US office S-REIT peers on operational metrics and capital management, with low near-term leasing and refinancing risks.
- We see upside from deal opportunities and as it eyes a FTSE EPRA NAREIT Index inclusion in the medium term.
- See
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-05-19
SGX Stock
Analyst Report
1.100
SAME
1.100
