PRIME US REIT (SGX:OXMU)
Prime US REIT - Broadening Growth
Acquisitions add growth, strengthen AUM
- Prime US REIT (SGX:OXMU) has added two new US markets to its portfolio, as it expands into San Diego and Florida, with its latest deals. The freehold office properties are well-sited in attractive submarkets, and backed by strong attributes, and we expect its resilient tenancies to strengthen Prime US REIT’s AUM growth profile. The favourable lease structures (with +3% pa rental escalations) and longer WALEs should reinforce its DPU visibility, while rising leasing momentum suggests further positive rental reversions.
- We maintain our current DPUs forecast pending deal closure, as Prime US REIT's valuations are compelling at 8% FY21 DPU yield, and > 30% upside to our US$1.10 DDM-based target price (COE: 8.3%, LTG: 2.0%).
Sorrento Towers deepens tech exposure
- The property is well-placed within the Sorrento Mesa submarket and at the epicentre of San Diego, which is ranked as the 7th top tech city in the US. It enjoys high 95.6% occupancy and a long 6.6-year WALE, with demand underpinned by the city’s burgeoning tech and life science clusters.
- Market supply has been constrained, and an anchor tenant Dexcom (occupying 50% of NLA) expanded in Mar 2021 at +11.2% rental reversion. While its strong attributes are reflected in a 5.3% cap rate (versus the market’s 6+%), the US$493 psf implied transaction value is undemanding against a US$700 psf replacement cost, and should support upside to both occupancies and rents.
One Town Center accesses rising Florida wealth pool
- This is viewed as a best-in-class office property within Florida’s Boca Raton submarket, that has seen strong demand growth, as the advantageous tax climate has fuelled an in-migration of wealth and businesses. It boasts a 94.7% occupancy (above the market’s 84.5%) and a 6.2-year WALE, backed by finance sector tenancies (anchored by BoA Merrill Lynch and Raymond James).
- With high development costs limiting new supply, expansions and relocation activities should cushion occupancies and support upside to rents, which are currently 7-10% below market.
Deals accretive at 0.7-2.4%
- Prime US REIT has launched a private placement exercise to partially finance the US$245.5m acquisitions, which should result in 2.4% DPU accretion (or lower at +0.7% if the EFR is upsized from US$80m to S$100m), with gearing rising from 33.8% to 39.1%.
- The deals are expected to boost its free-float market cap by 24% to S$0.5b, and places Prime US REIT closer to its medium term FTSE EPRA NAREIT Index inclusion target.
- See
Chua Su Tye
Maybank Kim Eng Research
|
https://www.maybank-ke.com.sg/
2021-06-24
SGX Stock
Analyst Report
1.100
SAME
1.100
