Prime US REIT is a Singapore listed REIT with office-related assets in the United States. They were listed not too long ago back in July 2019. We have previously written a post on its performance in FY19. Given that that was almost a year ago, we have decided to dive into some of the key things you need to know about its FY20 performance.
As at 31 December 2020, they owned a total of 12 office properties with an approximate carrying value of USD 1.4 billion. Prime US REIT is sponsored by KBS Asia Partners, an entity associated with KBS which is one US largest commercial real estate managers. This is great for Prime US REIT as it allows them to tap into their expertise.
1) Acquisition of Park Tower bringing their total properties owned to 12
During the year ending 31 December 2020, Prime US REIT has added another property, Park Tower into its overall portfolio. The property is a 24 storey Class A office tower and 5-storey mixed-use retail asset located in Sacramento, California.
Park Tower is already tenanted with a 92.2% occupancy rate upon its acquisition. It has a Weighted Average Lease Expiry (WALE) of 5.6 years which is fairly healthy.
This acquisition allows them to leverage on the growing real estate market in the Sacramento area. Looking at its historical occupancy rate and average asking rent, it has been on a steady rise. This would potentially be beneficial to Prime US REIT in the long haul.
2) Stable occupancy rate in FY20
The next aspect we will look at is the occupancy rate of Prime US REIT. The occupancy rate is one of the important operational metrics we often look into as it plays a huge role in the REITs operations.
There has been a slight drop in its occupancy rate from 95.8% in FY19 to 92.4% in FY20. The dropped could be an indirect impact of the COVID-19 pandemic but nevertheless, still within a stable range.
Comparing Prime US REIT overall occupancy rate against the country industry average, they are doing comparably well. This is based on its occupancy rate of 92.4% and the US class A Office occupancy rate of 86.8%.
3) Reported an overall positive rental reversion with the expectation of leasing momentum to be strong in FY21
Another key operational indicators we keep an eye on is the rental reversion of the REIT. An overall positive rental reversion is a plus for the organic growth of a REIT. Prime US REIT reported a positive rental reversion of 7.2% in FY20. This is great given then uncertainty of COVID-19 pandemic itself.
As per the management, the leasing momentum remains strong going. Looking at its is YTD rental reversion in 2021, they have already reported a 6.9% increase in rental for 48.6k square feet of space renewed. Definitely a solid head start.
4) Increased in overall financial performance
Given the strong occupancy rate coupled with a positive rental reversion of Prime US REIT, it comes as no surprise that its financial performance improved as well. Looking at its net property income, it has increased from USD 40.2 mil in FY19 to USD 94.9 mil in FY20. This seems like a huge increased but it is important to note that the comparative FY19 is based on 6 months performance as compared to 12 months in FY20.
Even if we were to extrapolate and compare it on an apple to apple basis, the overall net property income has still improved. Apart from being driven by the stable occupancy and positive rental reversion, the increased is partly from the newly acquired Park Tower acquired early FY20.
With the leasing demand expected to be strong in FY21, this could potentially be favourable.
5) Prime US REIT reported a 3% increase in distribution per unit compared to its forecast
The next aspect which is important to investors is no doubt the distribution per unit of Prime US REIT. For the year ending FY20, they have reported a distribution per unit of 6.94. This represents an approximate 3% increase from its DPU forecast of 6.70 cents.
Based on its 31 December 2020 closing price of USD 0.79, this would give investors a dividend yield of 8.8%. A fairly healthy yield.
6) Gearing level within a healthy range
Last but not least, we will look into Prime US REIT debt profile which is looking great. The gearing level has improved slightly from 33.7% in FY19 to 33.5% in FY20. This is way below the permissible limit giving them ample debt headroom for further asset acquiring and enhancement initiatives.
Interest Coverage has improved from 5.1x in FY19 to 5.8x in FY20 with an overall lower effective interest rate in FY20.
Based on our overall analysis, Prime US REIT has been performing rather well in FY20. Despite the uncertainty of the COVID-19 pandemic, their occupancy rate has been stable with an overall positive rental reversion. Furthermore, the REIT manager has also been proactive in the inorganic growth of Prime US REIT bringing additional growth prospect to the REIT. With the leasing demand expected to be strong in FY21, this could be a plus to Prime US REIT.
What are your thoughts on Prime US REIT? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.