Prime US REITs a prime opportunity as leasing performs strongly in slow market

Maybank Kim Eng  (MBKE) head of REITs research Chua Su Tye has issued a “buy” call on Prime US REIT due to stable occupancies and strong leasing momentum at 8.9% rent reversion despite weakened market demand. The SGX-listed REIT owns a diversified portfolio of US office real estate consisting of 12 properties across 9 cities including Atlanta, San Francisco and Washington DC. 

“PRIME continued to deliver ahead of its IPO projection in 3Q20… Distribution per unit (DPU) visibility into FY21 remains high, supported by a 4.6-year WALE, strong tenancies, and 2.0% per annum growth from its well-placed assets, currently under-rented by 6.7%,” Chua writes in a broker’s report on Nov 6. He maintains his 12-month target price of US$1.10 ($1.48). Leasing momentum grew 56.8% q-o-q in 3Q2020; 60% of leases come from renewals or expansion by existing tenants in established and technology industries. 

The counter continues to enjoy near perfect rent collection figures, with 3Q2020 seeing a 99% collection rate despite minor lease deferrals at 0.5% of its cash rental income (CRI). Portfolio occupancy has also remained stable at a healthy 92.9% in 3Q2020 relative to 93% in 2Q2020 despite a slight dip in renewals at its Tower 909 property in Texas. There is also the potential for positive rental reversions; market rents are now 7.5% above expiring rents in 2020.