Broker's take: Maybank KE ups Prime US Reit's target price, reiterates 'buy'

MAYBANK Kim Eng has reiterated its "buy" call on Prime US Reit, raising its target price to US$1.10 from US$1 on Wednesday.

The move follows the real estate investment trust's (Reit) better-than-expected third quarter and first full-year results ended Dec 31, as well as news of Prime US Reit's maiden proposed acquisition of Park Towers in Sacramento, California.

Prime US Reit units were trading at US$1.03 as at 1.14pm on Thursday, up one US cent or 1 per cent on a cum-dividend basis.

"US office market fundamentals remain strong, backed by high net absorption, specifically in its key sub-markets," said Maybank Kim Eng analyst Chua Su Tye.

On the proposed acquisition, Mr Chua said Park Tower's leases are backed by stable government-related tenancies which comprise 34.4 per cent of cash rental income. The research house also sees income growth led by rising occupancies.

Prime US Reit's balance sheet remains strong with an aggregate leverage of 33.7 per cent, suggesting a US$260 million debt headroom, he added.

Separately, the Reit's manager on Wednesday night said the private placement launched to partially fund the Park Tower acquisition was oversubscribed, with the issue price of US$0.957 coming at the top end of the range following a book-building process.

The joint lead managers and underwriters, in consultation with the manager, exercised the option to upsize the private placement, raising about US$120 million.

The private placement was 4.8 times covered with "strong participation from existing unitholders and new institutional investors". This includes long-only institutional investors, private wealth clients and multi-strategy funds.

The issue price represents a discount of 2 per cent to the adjusted volume-weighted average price of US$0.9768 per unit for trades done on Feb 11.