Prime US Reit gets a boost in Q3 from new acquisitions as leasing activity gains momentum

PRIME US Reit OXMU said its leasing activity more than trebled in the third quarter ended September, compared to the preceding quarter, amid "positive signals" in the US office market and wider US economy.

The manager of the real estate investment trust (Reit) reported that it executed 187,076 square feet (sq ft) of leases in Q3, at positive rental reversion of 19.1 per cent. This compares to the more than 52,000 sq ft of leases executed in Q2 at a positive rental reversion of 10.5 per cent.

Barbara Cambon, chief executive office and chief investment officer of the Reit manager, said at a briefing on Friday (Nov 5) accompanying its operational updates for the quarter: "A real landmark, especially for those of our buildings where we are targeting larger tenant spaces and looking for long-term leases, is that there's been a return in the third quarter of evidence showing long-term lease decisions are now being made.

"We've also seen more normalisation of lease terms. Fewer tenants were just looking at short-term decisions. There were a few that were still making short-term (decisions), but most of our leases were for more normalised lease durations," she noted, adding that the majority of the leases executed in Q3 were renewals.

Only 7,333 sq ft - under 4 per cent of leasing activity in Q3 - came under short-term leases.

Prime US Reit's weighted average lease expiry (WALE) extended to 4.5 years in Q3, from 4.1 years as at end-June.

The longer WALE was partially due to the Reit's new acquisitions - One Town Center in Florida and Sorrento Towers in San Diego, California - which were completed in July, near the start of Q3.

Contributions from the acquisitions also helped boost Prime US Reit's results for the latest 3-month period.

Gross revenue rose 10.1 per cent year on year to US$40.4 million, while net property income (NPI) grew 10.7 per cent to US$26.8 million.

Excluding the new acquisitions, the Reit manager said revenues and NPI from the portfolio were "stable" compared to the first 2 quarters of this financial year.

In line with the higher NPI, distributable income jumped 11.3 per cent year on year to US$20 million in Q3.

Portfolio occupancy dipped slightly to 91.4 per cent during the quarter, down 0.3 percentage point from 91.7 per cent as at end-June.

Following the latest acquisitions of One Town Center and Sorrento Towers, the Reit manager said it is "well-positioned" to continue executing on its growth strategy.

Prime US Reit's gearing ratio stood at 38.4 per cent as at end-September, with debt headroom of US$393 million at the 50 per cent leverage limit and available credit facilities in excess of US$200 million. Interest coverage was 5.5 times for the period ended September.

"As we look at acquisitions, we continue to see attractive opportunities," Cambon said. "I think as people in general become more comfortable with a view that we can look forward with more visibility than we've had these last 18 months, people will be more likely to become more actively engaged in the process of buying and selling assets."

"We will look to continue capturing leasing and growth opportunities in key non-gateway markets as the economy regains momentum," she added.

"Prime US Reit compares well with its US office S-Reit peers, as it has low near-term leasing and refinancing risks," said Maybank Kim Eng analyst Chua Su Tye in a report on Friday (Nov 5). "We see better fundamentals as physical occupancy recovers in FY2022, with catalysts from improving leasing momentum, and upside from acquisitions."

Maybank KE has a "buy" recommendation on the counter with an unchanged target price of US$1.10.

Units of Prime US Reit closed 1.2 per cent or 1 US cent higher at 87.5 US cents on Friday, following the announcement of its Q3 operational updates after market close on Nov 3. The Singapore market was closed on Nov 4 for a public holiday.

READ MORE

• Prime US Reit acquiring two office assets for US$245.5m, to be part funded by placement
• WeWork to close operations at Prime US Reit property; in talks over lease obligation