Leasing Gains Traction Despite Slow Market

• Prime US REIT (SGX:OXMU) continued to deliver ahead of its IPO projection in 3Q20, on the back of stable occupancy, and strong leasing momentum at +8.9% rental reversion against softening market demand.
• Prime US REIT's DPU visibility into FY21 remains high, supported by a 4.6-year WALE, strong tenancies, and +2.0% pa growth from its well-placed assets, currently under-rented by 6.7%.
• We maintain our forecasts and DDM-based Target Price (COE: 7.4%, LTG: 2.0%).
• Prime US REIT's valuations are compelling at 8+% FY20 DPU yield with improving operational performance and potential acquisitions, as re-rating catalysts. BUY.

Stable Occupancy, Rent Collection at 99%

• Prime US REIT's 3Q20 revenue, NPI and distributable income exceeded IPO projections by +9.1%, +9.8% and +15.4% respectively, while 9M20 estimates were ahead by +6.8%, +8.3%, and +15.2%.
• Rental collections remained high in 3Q20 at 99%, with minimal lease deferrals at 0.5% of cash rental income (CRI).
• Portfolio occupancy was stable at 92.9% (vs 93.0% in 2Q20) while there was a dip with non-renewals at Tower 909 (from 94.7% to 90.3%).
• Prime US REIT's properties are well-placed, with demand from financial and technology sector tenancies expected to support backfilling in the coming quarters.

Reversion Stronger at +8.9%

• Leasing momentum has picked up with ~83.2k sf added in 3Q20, up 56.8% q-o-q, bringing 9M20 to ~165.8k sf or 4.3% of NLA. A +8.9% rental reversion was achieved on long-term leases (vs +8.5% in 2Q20) with over 60% of leases attributed to renewals or expansion by its existing tenants in established and technology industries.
• Prime US REIT's DPU visibility is high, with 99.8% of leases by CRI backed by embedded rental escalations averaging +2.0% pa, and supported by a 4.6-year WALE (5.4 years for its top ten tenants) with 10.7% of its leases (by CRI) expiring by 2021.

Strong Balance Sheet, Stacks Well Against Peers

• Prime US REIT's balance sheet remains strong with leverage at 32.7%, and suggests USD324m in debt headroom (at 45% limit).
• Prime US REIT continues to place well against its US office S-REIT peers on operational metrics and capital management, with low near-term leasing and refinancing risks.

Source: Maybank Kim Eng Research - 6 Nov 2020