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Prime US REIT - Maybank Kim Eng 2021-11-05: Strong Leasing And Reversions

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

Prime US REIT - Strong Leasing And Reversions


Growth, better visibility from acquisitions

  • Prime US REIT (SGX:OXMU)’s distributable income rose 11.3% y-o-y/12.1% q-o-q in 3Q21, driven by the Sorrento Towers and One Town Center acquisitions. While occupancy was lower, leasing volumes jumped > 250% q-o-q at a strong +19.2% rental reversion.
  • Prime US REIT's DPU visibility has improved from a 4.5-year WALE (versus 4.1 years in 2Q21), and 2.0% p.a. growth from its AUM, currently under-rented by 7.5%.
  • We see better fundamentals as physical occupancy recovers in FY22, with catalysts from improving leasing momentum, and upside from acquisitions.
  • Prime US REIT's valuations are compelling at 8+% FY22 DPU yield, and 30+% upside to our US$1.10 DDM-based target price (COE: 8.2%, LTG: 2.0%).



Lower occupancy, backfilling underway

  • Prime US REIT's portfolio occupancy was lower at 91.4% (from 91.7% in 2Q21) despite the higher occupancies at Sorrento Towers (at 98.1%) and One Town Center (94.7%), both added in Jul, as occupancies fell at Park Tower (92.4% to 88.3%), and One Washingtonian Center (95.6% to 80.6%).
  • Vacancy rose at the latter from a single pre-term, with fees to cushion income to Nov 2022. The asset is well placed, and management sees potential for incremental revenue contribution.
  • Improving leasing activity, up 7.8% q-o-q, with > 40% from leases extending over 10 years, should support backfilling efforts.


Positive leasing momentum, rental reversion trend

  • Prime US REIT leased ~187k sf in 3Q21 at +19.2% rental reversion, up from ~52k sf in 2Q21 at +10.5%, and ~80k sf in 1Q21 at +8.5%. Most were renewals, while 17.5% were from new leases. Half of leasing activity was attributed to AGG (at 3.0% of cash rental income), as it extended its lease at 171 17th Street till 2035, at +25% reversion, but downsized its footprint from ~122k sf to ~98k sf.
  • Expiring leases in 4Q/FY22 are low at ~2-10% with nine (of 14) properties at sub-1%. With in-place rents at Reston Square 14.7% above passing rents, negative rental reversions for its 2.6% expiries are likely.

Sound balance sheet, upside from acquisitions






Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-11-05
SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100



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