Prime US REIT - DBS Research 2022-11-10: To Ride The Storm

Prime US REIT - To Ride The Storm

  • Prime US REIT (SGX:OXMU)'s 3Q22 estimated DPU -5.2% y-o-y to US$0.0163, in line with our estimates, mainly due to vacancies including WeWork, which vacated in 4Q21, and Whitney Bradley & Brown, in 3Q22.
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  • All-in average cost of debt inched up marginally q-o-q to 3.2% from 3.1% in 2Q22. Hedging ratio at 83% as at 3Q22 with fixed rate (hedged/fixed) expiries in mid-2024 to 2029 (66% is hedged/fixed through to mid-2026 and beyond).
  • Prime US REIT's refinancing risks are largely mitigated as debt facilities have one to two years of extensions. As such, the next refinancing requirement (67% of total debt) will be in 2024.

Key highlights & observations from Prime US REIT's 3Q22 earnings –

Portfolio occupancy stable q-o-q at 89.6%; maintained strong positive reversions at 10% but will look to provide lease incentives to drive occupancy

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  • Prime US REIT signed leases for 246.2k sqft, close to that of total leases signed in 1H22, mainly led by the new lease at Tower 1 at Emeryville. Leases of 95.1k sqft (~39% of leases signed in 3Q22) will commence in 2022, while the remaining is expected to commence in 2023.
  • Prime US REIT has minimal lease expiries remaining in FY22 and is currently working on the upcoming lease expiries in FY23, 15.9% of CRI. We understand that management is in talks with one of the major tenants with lease expiries in FY23.
  • Short-term leases maintained at 3.8% of NLA or 2.4% of CRI.
  • Strong positive rental reversions continue, recording +10% vs +10.9% in 2Q22 and +3.4% in 1Q22. Passing rents are still 6.7% below that of market rents. However, management may provide lease incentives to increase occupancy. IT costs have seen an increase in tandem with higher renovation costs.
  • Management has seen uptick in physical occupancy post Labor Day in some buildings within the portfolio, in line with the observations in the market.
  • While there are no meaningful transactions in the market, management expects some cap rate expansion towards the end of the year given the sharp increase in interest rates.

Maintain BUY on Prime US REIT with lower target price to US$0.65.

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Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Rachel TAN DBS Group Research | Derek TAN DBS Research | 2022-11-10

Read also DBS's most recent report:
2023-08-10 Prime US REIT - Challenging Times Remain.

Previous report by DBS:
2023-05-11 Prime US REIT - Riding The Storm.

Price targets by 3 other brokers at Prime US REIT Target Prices.

Listing of research reports at Prime US REIT Analyst Reports.

Relevant links:
Prime US REIT Share Price History,
Prime US REIT Announcements,
Prime US REIT Dividends & Corporate Actions,
Prime US REIT News Articles


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