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Friday, August 20, 2021

Prime US REIT Review @ 20 August 2021

Basic Profile & Key Statistics

Prime US REIT (PRIME) is an office REIT with 14 properties in U.S.

Performance Highlight

Despite a slight increase in gross revenue; NPI, distribution income and DPU have decreased YoY. The decrease is due to an increase in property taxes for 101 South Hanley but offset by the contribution from Park Tower.

2Q rental reversion is at 10.5%. 

In July, PRIME has acquired Sorrento Towers and One Tower Center which funded through a combination of debt and private placement. This acquisition is expected to be DPU accretive.

 Related Parties Shareholding

  • REIT sponsor's shareholding is low at 0.91%
  • REIT manager's shareholding is low at 0.64%
  • Directors of REIT manager's shareholding is high at 1.16%

Lease Profile

  • Occupancy is slightly low at 91.7%
  • WALE is slightly long at 4.1 years
  • Highest lease expiry within 5 years is low at 19.4% which falls in 2025
  • All properties are freehold

Debt Profile

  • Gearing ratio is slightly low at 34.4%
  • Cost of debt is high at 2.8%
  • Fixed rate debt % is high at 86%
  • All debts are secured debts
  • WADM is long at 3.7 years
  • Highest debt maturity within 5 years is high at 40% which falls in 2023, identical to 2024
  • Interest coverage ratio is high at 5.8 times

Diversification Profile

  • Top geographical contribution is low at 20% 
  • Top property contribution is low at 13.4%
  • Top 5 properties contribution is low at 55.8% 
  • Top tenant contribution is low at 9% 
  • Top 10 tenants contribution is high at 41.3%

Key Financial Metrics

  • Property yield is high at 6.6% 
  • Management fees over distribution is low at 11.1% in which unitholders receive S$ 9.01 for every dollar paid 
  • Distribution on capital is high at 5.1%
  • Distribution margin is moderate at 49.6%

Trends

  • Uptrend - Interest Coverage Ratio
  • Flat - NAV per Unit, Distribution on Capital, Distribution Margin
  • Slight Downtrend - DPU
  • Downtrend - Property Yield

Relative Valuation

  • P/NAV - Above average for 1y; Average for 3y
  • Dividend Yield - Below average for 1y; Average for 3y

Author's Opinion

 Favorable Less Favorable
High Directors of REIT Manager's ShareholdingLow REIT Sponsor's Shareholding
Well Spread Lease ExpiryLow REIT Manager's Shareholding
100% Freehold PropertiesHigh Cost of Debt
High Fixed Rate Debt %0% Unsecured Debt
Long WADMConcentrated Debt Maturity
High Interest Coverage RatioHigh Top 10 Tenants Contributions
Low Top Geographical ContributionProperty Yield Downtrend
Low Top Property & Top 5 Properties Contributions 
Low Top Tenant Contribution 
High Property Yield 
Competitive Management Fees 
High Distribution on Capital 
Interest Coverage Ratio Uptrend
PRIME fundamental remains resilient and occupancy has seen stabilized in these 2 quarters. The recent acquisition coupled with positive rental revision in 1H should improve PRIME performance in the upcoming quarters.

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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 and 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.

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