Prime US REIT Analysis @ 15 November 2020

Basic Profile & Key Statistics

Prime US REIT (PRIME) is a pure office REIT with 12 properties in U.S.

Performance Review

The IPO projection figures are very similar to the 3Q 2019 annualized figures, which are 33,727 for gross revenue,e 22,271 for NPI, 15,902 for distributable income and 1.716 cents for DPU. Compare to the annualized figure YoY, gross revenue increased by 8.9%, NPI increased by 8.7%, distributable income increased by 13.1%. These increases are contributed by Park Tower which was acquired in Feb 2020. Distributable income of 17,987 translates into 1.703 cents DPU, which decreased by 0.7% YoY.

Rental reversion is positive at 8.9%.

Lease Profile

Occupancy is moderate at 92.6%. WALE is long at 4.6 years where the highest lease expiry of 47% falls in 2025 and beyond, without breakdown. All of PRIME properties are freehold.

Debt Profile

Gearing ratio is low at 32.7%. Cost of debt is moderate at 2.7% with 0% unsecured debt. Interest cover ratio is high at 5.8 times. WADE is long at 4.4 years where the highest debt maturity of 33% falls in 2023, also identical to 2024. 

Diversification Profile

Top geographical, top property and top tenant contributions are low at 16.5%, 14.2% and 8.7%. Top 10 tenants contribution is high at 42.5%. 

Key Financial Metrics

Property yield and distribution on capital are high at 7% and 5.3% respectively. Management fee is competitive in which unitholders receive US$ 9.80 for every dollar paid to the manager. Distribution margin is moderate at 49.7%. 

Trends

Slight Uptrend - Interest Cover Ratio, Distribution Margin

Flat - DPU, NAV per Unit

Slight Downtrend - Property Yield

Note that the actual 3Q 2019 DPU is 1.38 for the period between 19 July 2019 to 30 September 2019, for a fair comparison, I have annualized it to 3 months period to around 1.716. 

Relative Valuation

i) Average Dividend Yield  - Average yield at 8.15%,  apply the annualized past 4 quarters DPU of 6.993 cents will get US$ 0.86. 

ii) Average Price/NAV - Average value at 0.99, apply the latest NAV of US$ 0.86 will get US$ 0.85.

Author's Opinion

Favorable	Less Favorable
Long WALE	0% Unsecured Debt
100% Freehold Properties	High Top 10 Tenants Contribution
Low Gearing Ratio
High Interest Cover Ratio
Long WADE
Low Top Geographical Contribution
Low Top Property Contribution
Low Top Tenant Contribution
High Property Yield
Competitive Management Fees
High Distribution on Capital

From the above table, could see that PRIME fundamental remain solid. 

For the remaining 10.7% lease expiry in this year and 2021, the potential rental reversion is at 6.7%. If this can be achieved, next year's performance would see an improvement. 

For more information, you could refer to:

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REIT Analysis - List of previous REIT analysis posts

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss, or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.