Delivering Ahead Again, Eyeing Deal Upside

• Prime US REIT (SGX:OXMU)’s 2H20 and FY20 DPUs were ahead of its IPO projection by 2.1% and 3.6%, on the back of stable occupancy, and its maiden acquisition of Park Tower in Feb 2020 at 6.9% NPI yield.
• Leasing activity is improving into FY21 while Prime US REIT's DPU visibility remains high, supported by a 4.4-year WALE, strong tenancies, and +2.0% pa growth from its AUM, currently under-rented by 6.5%.
• Prime US REIT's valuations are compelling at 8+% FY21 DPU yield, 43% upside to our US$1.10 DDM-based target price (COE: 8.3%, LTG: 2.0%), with improving operational performance and potential acquisitions, as re-rating catalysts.
• BUY.

Stable Occupancy, Assets Well-placed

• Prime US REIT's 2H20 revenue, NPI and distributable income exceeded IPO projections by 7.4%, 7.8% and 16.1% respectively, while FY20 estimates were ahead by 6.6%, 7.7%, and 15.6%.
• Rental collections remained strong at 99%, while portfolio occupancy was stable at 92.4% (vs 92.6 in 3Q20).
• While the occupancies at Village Center Station I, 171 17th Street, and Park Tower at between 65.1-92.6% were below market at 81.8-94.9%, Prime US REIT's properties are well-placed, with demand from financial and technology sector tenancies expected to support backfilling efforts in the coming quarters.

4Q20 Reversion at +8.3%, Assets 6.5% Under-rented

• Prime US REIT leased ~59k sf in 4Q20 at +8.3% rental reversion, vs ~83k sf in 3Q20 at +8.9%, and closed FY20 with ~225k sf at +7.2% or 5.8% of total NLA. More than 60% of leases were renewals or expansion by its existing tenants in established and technology industries.
• Leasing activity has picked up in FY21 with ~48k sf year-to-date at +6.9% reversion and will moderate expiring leases (9.0% of NLA, 8.8% of cash rental income).
• Prime US REIT's DPU visibility remains high, with 99.9% of leases backed by embedded rental escalations averaging +2.0% pa and supported by a 4.4-year WALE (5.2 years for its top ten tenants).

Strong Balancescores Well Against Peers

• Prime US REIT's leverage is low at 33.5%, vs 32.7% at end-Sep 2020, with US$303m debt against its US office S-REIT peers on operational metrics and capital management, with low near-term leasing and refinancing risks.
• Prime US REIT Blog Articles
• We see acquisition upside as Prime US REIT eyes growth opportunities (innovation clusters outside core urban locations) and a FTSE EPRA NAREIT Index inclusion in the medium term.

Source: Maybank Kim Eng Research - 18 Feb 2021