Growth, Better Visibility From Acquisitions

• Prime US REIT (SGX:OXMU)’s 2H21 DPU rose 0.9% y-o-y/3.6% h-o-h, driven by contributions from Sorrento Towers and One Town Center, which were acquired in Jul 2021. Occupancy was lower in 4Q21, but should increase with stronger leasing momentum in FY22.
• Prime US REIT's DPU visibility is high, and underpinned by a 4.2-year WALE, and 2.0% p.a. growth from its AUM, currently under-rented by 7.3%. We see better fundamentals as physical occupancy recovers, with catalysts from improving leasing activity, and upside from acquisitions. The results were in line with consensus’ and our estimates, and our forecasts for Prime US REIT are unchanged.

Lower Occupancy, Backfilling Underway

• Prime US REIT's portfolio occupancy fell to 90.3% in 4Q21 (from 91.4% in 3Q21), due mainly to lower occupancies at Tower I at Emeryville (which fell from 95.9% to 70.4%) and Crosspoint (100% to 94.6%). At the former, a resolution has been reached with WeWork (which occupied ~26% of the NLA), with settlement fees for an early exit expected to cushion Prime US REIT’s income through to 4Q22.
• While backfilling is underway, demand is likely to lag recovery at One Washingtonian Center (80.6% occupied due to a pre-term in 3Q21). Management expects occupancies to bottom out by 1H22, in line improving macros and leasing sentiment.

Positive Rental Reversion Trend

• Leasing momentum picked up in 2H21 at +114% h-o-h, although it expiries in FY22, at rents 15.1% above market.

Strong Balance Sheet, Deal Upside

• Prime US REIT's gearing was stable at 37.9% (from 38.4% at end-Sep 2021), while AUM rose ~18% y-o-y to price (COE: 8.4%, LTG: 2.0%).

Source: Maybank Research - 17 Feb 2022