-->

Prime US REIT - Phillip Securities 2022-09-14: Resilient Portfolio

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

Prime US REIT - Resilient Portfolio

  • Resilient portfolio with 8 consecutive quarters of positive rental reversions. Leases signed in 2Q22 enjoyed positive rental reversions of +10.9%.
  • Minimally impacted by rising interest rates, with 86% of debt either on fixed rate or hedged through interest rate swaps. Around 51% of debts have hedges in place through to 2026.
  • Maintain BUY rating on Prime US REIT (SGX:OXMU) with DDM-based target price lowered from US$1 to US$0.88 as we trim our FY22e- FY24e DPU forecast by 1- 2%. Our COE nudged up from 9.6% to 10.55% on higher risk-free rate assumption and market risk.
  • Prime US REIT is our top pick in the US office sector for greater tenant exposure to STEM/TAMI sectors. Catalysts include improved leasing and a greater return to office. The current Prime US REIT's Share Price implies FY22e and FY23e DPU yield of 11.4 and 11.6% respectively.



Prime US REIT - Investment thesis


8 consecutive quarters of positive rental reversions.

  • Prime US REIT signed 85.7k sq ft, or 1.8%, of portfolio CRI in 2Q22, with an overall rental reversion of +10.9%; 47% of which were new leases. 2Q22 leasing activities were mainly from financial, professional services and healthcare sectors.
  • Management guided that leasing demand and enquiries for its assets remain strong and active leasing discussions are ongoing for Tower 1 at Emeryville, Village Center Station 1, Tower 909, 222 Main and 171 17th Street.

Resilient portfolio.

  • Prime US REIT has a diversified portfolio, with no single primary market contributing more than 11.7% of CRI and no single property contributing more than 13.8% of CRI. Portfolio occupancy remained stable in 2Q22 at 89.6%.
  • Prime US REIT also has a healthy WALE of 4 years, with well staggered lease expirations. Their tenant industry sector diversification also contributes to their resiliency, with 74% of tenants in established and growth STEM/TEMI sectors. (STEM: Science, Technology, Engineering and Math; TAMI: Technology, Advertising, Media and Information)

Minimally impacted by rising interest rates

  • Minimally impacted by rising interest rates, as ~86% of Prime US REIT's debt is either on fixed rate or hedged through interest rate swaps. About 51% of debts have hedges in place through to 2026, while ~18% of debts are hedged for the next 2 years. About 17% of debt is on fixed rate and matures in 2029. No debt expiring until 2024, assuming the exercise of extension options.
  • Prime US REIT has aggregate leverage of 37.8%. According to our calculations, every 100 basis points increase in interest rates would affect FY22e DPU by ~1.1%.


Prime US REIT - Outlook

  • As of June 2022, office-using employment increased by about 1.6 million (+4.8% y-o-y), and there were 1.06 million (+3.2%) more office-using workers than before the pandemic began. The US job market remain healthy and this has spurred many companies to add office space to house a larger workforce.
  • Leasing activity picked up in 1H22 with stronger demand coming from the financial, professional services and healthcare sectors. Physical occupancy across the portfolio is at ~50% as more tenants implement their return-to-work plans. With in-place rents ~5.3% below asking rents, Prime US REIT’s portfolio is primed for more positive rental reversions.

Maintain BUY recommendation on Prime US REIT with lower target price.






Darren Chan Phillip Securities Research | https://www.stocksbnb.com/ 2022-09-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.88 DOWN 1.000



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......