IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p>Today, <a href="https://www.smartkarma.com/entities/singapore-press-holdings-limited" target="_blank" data-smartkarma-citation="entities:9952:1" rel="noopener">Singapore Press Holdings (SPH SP)</a> announced a competing privatisation offer from Cuscaden at S$2.10 cash per SPH share, which is a 40.0% premium to the share price of S$1.50 on 30 March 2021 (announcement of SPH’s strategic review), an 11.7% premium to the share price of S$1.88 on 30 July (last trading day prior to <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp (KEP SP)</a>’s offer) and a 5.5% premium to the share price of S$1.99 on 28 October (last close prior to the trading halt). </p><p>As discussed in <a href="https://www.smartkarma.com/insights/sph-s-privatisation-by-keppel" target="_blank" data-smartkarma-citation="insights:55402" rel="noopener">SPH’s Privatisation by Keppel</a>, on 2 August, SPH announced a privatisation offer from Keppel. The transaction involves Keppel offering S$0.668 cash per SPH share and 0.596 Keppel REIT units per SPH share along with SPH distributing-in-specie 0.782 SPH REIT units per SPH share. Based on the last close price of <a href="https://www.smartkarma.com/entities/keppel-reit" target="_blank" data-smartkarma-citation="entities:192:1" rel="noopener">Keppel REIT (KREIT SP)</a> and <a href="https://www.smartkarma.com/entities/sph-reit" target="_blank" data-smartkarma-citation="entities:5994:1" rel="noopener">SPH REIT (SPHREIT SP)</a>, the total consideration is S$2.104 per SPH share, a whisker above Cuscaden’s all-cash offer.  </p><p>The two privatisation proposals are the culmination of the SPH’s strategic review to unlock shareholder value. The strategic review commenced with the announcement of the media business restructuring announced on 6 May. Shareholder approval for the media business restructuring was obtained on 10 September and is expected to be completed in December. </p><p>While Cuscaden’s offer is broadly similar in value to Keppel’s offer, Cuscaden’s offer may be more appealing particularly to minorities. Cuscaden’s offer has greater certainty of value as it is all cash, eliminates the risk of changing REIT unit prices (Keppel REIT and SPH REIT) and does any require further shareholders' approval on the part of Cuscaden (Keppel’s offer requires approval from Keppel shareholders). Cuscaden’s offer will also not be reduced by the S$34 million break fee payable to Keppel. </p><p>SPH responded to Cuscaden’s offer by stating that it is "<em>not a firm offer</em>" and it has "<em>not entered into any definitive or binding agreement</em>" with Cuscaden. Keppel responded to Cuscaden’s offer by stating that “<em>we are reviewing the matter and make an announcement at an appropriate time.</em>”</p><div class="content-highlight"><p>In the event of a competing offer, Keppel has a switch option to proceed with the acquisition by way of an offer in lieu of proceeding with the acquisition by way of the scheme. We previously noted that the acquisition of SPH aligns with Keppel’s Vision 2030 of improving earnings quality, increasing scale and pursuing new growth initiatives. The modest premium of both competing offers to SPH’s historical long-term multiples and share prices suggests that there is room for Keppel to bump its offer and start a bidding war. </p></div>

Today, Singapore Press Holdings (SPH SP) announced a competing privatisation offer from Cuscaden at S$2.10 cash per SPH share, which is a 40.0% premium to the share price of S$1.50 on 30 March 2021 (announcement of SPH’s strategic review), an 11.7% premium to the share price of S$1.88 on 30 July (last trading day prior to Keppel Corp (KEP SP)’s offer) and a 5.5% premium to the share price of S$1.99 on 28 October (last close prior to the trading halt). As discussed in SPH’s Privatisation by Keppel, on 2 August, SPH announced a privatisation offer from Keppel. The transaction involves Keppel offering S$0.668 cash per SPH share and 0.596 Keppel REIT units per SPH share along with SPH distributing-in-specie 0.782 SPH REIT units per SPH share. Based on the last close price of Keppel REIT (KREIT SP) and SPH REIT (SPHREIT SP), the total consideration is S$2.104 per SPH share, a whisker above Cuscaden’s all-cash offer.  The two privatisation proposals are the culmination of the SPH’s strategic review to unlock shareholder value. The strategic review commenced with the announcement of the media business restructuring announced on 6 May. Shareholder approval for the media business restructuring was obtained on 10 September and is expected to be completed in December. While Cuscaden’s offer is broadly similar in value to Keppel’s offer, Cuscaden’s offer may be more appealing particularly to minorities. Cuscaden’s offer has greater certainty of value as it is all cash, eliminates the risk of changing REIT unit prices (Keppel REIT and SPH REIT) and does any require further shareholders' approval on the part of Cuscaden (Keppel’s offer requires approval from Keppel shareholders). Cuscaden’s offer will also not be reduced by the S$34 million break fee payable to Keppel. SPH responded to Cuscaden’s offer by stating that it is "not a firm offer" and it has "not entered into any definitive or binding agreement" with Cuscaden. Keppel responded to Cuscaden’s offer by stating that “we are reviewing the matter and make an announcement at an appropriate time.”In the event of a competing offer, Keppel has a switch option to proceed with the acquisition by way of an offer in lieu of proceeding with the acquisition by way of the scheme. We previously noted that the acquisition of SPH aligns with Keppel’s Vision 2030 of improving earnings quality, increasing scale and pursuing new growth initiatives. The modest premium of both competing offers to SPH’s historical long-term multiples and share prices suggests that there is room for Keppel to bump its offer and start a bidding war. 

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;</strong>SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<h2>Prime US REIT</h2>
<h3>Bottoming out expected at year-end</h3>
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<li>1H21 NPI and distributable income met expectations, at 46% of our FY21e estimates. Despite higher rental reversions and income contributions from Park Tower, NPI declined 2.3% YoY due to lower portfolio occupancy and transient parking income.</li>
<li>Two new properties were acquired in new markets with longer WALEs and higher occupancies than portfolio. We expect greater resilience and earnings visibility from an enlarged portfolio.</li>
<li>Maintain ACCUMULATE and DDM target price of US$0.94 (COE 9.5%). FY21e/FY22e DPUs lowered by 10.5%/0.7% to reflect lower carpark income and softer leasing, offset by reversions and rental income from new acquisitions. Catalysts include improved leasing and a greater return to office.</li>
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<p><strong>The Positives</strong><br><strong>+ Positive reversions.</strong> Prime signed 52,349 sq ft of leases in 2Q21 at positive rental reversions of 10.5%. Excluding short-term lease extensions of 9,931 sq ft, rental reversions were 13.3%. This could be credited to leases signed at 101 South Hanley and Tower 909, where expiring rents are 11-13.5% below market. Positive rent reversions are expected going into 3Q, as portfolio rents are below asking rents by 6.4%.</p>
<p><strong>+ Acquisitions enhance resilience.</strong> As of 23 July, Prime completed the acquisition of two new properties: Sorrento Towers in San Diego and One Town Center in Florida. San Diego is one of the top 10 tech cities in the US, where demand from the biotechnology, biopharmaceutical, international trade, high-tech and defence sectors is strong. South Florida is one of the top 10 states for population in-migration thanks to its favourable tax climate and quality of life. These acquisitions introduce Prime to two new markets and increase its exposure to key industry sectors. They have also extended its portfolio WALE from 4.4 to 4.6 years. Occupancy at both properties is above portfolio occupancy of 91.7%, at 98.2% and 94.7% respectively. This improves earnings visibility. The acquisitions were funded by debt and equity. Proforma DPU could be lifted by an estimated 2.4% after acquisition, based on FY20 figures.</p>
<p><strong>The Negative</strong><br><strong>- Lower portfolio occupancy and carpark income vis-à-vis a year ago.</strong> Despite its positive rental reversions and contributions from Park Tower acquired on 24 February 2020, 1H21 gross revenue climbed only 2.6% YoY. This is due to lower portfolio occupancy of 91.7% as compared to 93% a year ago, as well as reduced transient parking income which historically comprised mid to high single digits of Prime’s topline. Property expenses also increased 25.4% YoY with new expenses from Park Tower. As such, NPI and distributable income fell 2.3%/1.3% YoY. DPU declined 5.4% YoY from a larger unit base.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.






Prime US REIT
Bottoming out expected at year-end





1H21 NPI and distributable income met expectations, at 46% of our FY21e estimates. Despite higher rental reversions and income contributions from Park Tower, NPI declined 2.3% YoY due to lower portfolio occupancy and transient parking income.
Two new properties were acquired in new markets with longer WALEs and higher occupancies than portfolio. We expect greater resilience and earnings visibility from an enlarged portfolio.
Maintain ACCUMULATE and DDM target price of US$0.94 (COE 9.5%). FY21e/FY22e DPUs lowered by 10.5%/0.7% to reflect lower carpark income and softer leasing, offset by reversions and rental income from new acquisitions. Catalysts include improved leasing and a greater return to office.






The Positives + Positive reversions. Prime signed 52,349 sq ft of leases in 2Q21 at positive rental reversions of 10.5%. Excluding short-term lease extensions of 9,931 sq ft, rental reversions were 13.3%. This could be credited to leases signed at 101 South Hanley and Tower 909, where expiring rents are 11-13.5% below market. Positive rent reversions are expected going into 3Q, as portfolio rents are below asking rents by 6.4%.
+ Acquisitions enhance resilience. As of 23 July, Prime completed the acquisition of two new properties: Sorrento Towers in San Diego and One Town Center in Florida. San Diego is one of the top 10 tech cities in the US, where demand from the biotechnology, biopharmaceutical, international trade, high-tech and defence sectors is strong. South Florida is one of the top 10 states for population in-migration thanks to its favourable tax climate and quality of life. These acquisitions introduce Prime to two new markets and increase its exposure to key industry sectors. They have also extended its portfolio WALE from 4.4 to 4.6 years. Occupancy at both properties is above portfolio occupancy of 91.7%, at 98.2% and 94.7% respectively. This improves earnings visibility. The acquisitions were funded by debt and equity. Proforma DPU could be lifted by an estimated 2.4% after acquisition, based on FY20 figures.
The Negative - Lower portfolio occupancy and carpark income vis-à-vis a year ago. Despite its positive rental reversions and contributions from Park Tower acquired on 24 February 2020, 1H21 gross revenue climbed only 2.6% YoY. This is due to lower portfolio occupancy of 91.7% as compared to 93% a year ago, as well as reduced transient parking income which historically comprised mid to high single digits of Prime’s topline. Property expenses also increased 25.4% YoY with new expenses from Park Tower. As such, NPI and distributable income fell 2.3%/1.3% YoY. DPU declined 5.4% YoY from a larger unit base.














(Non-SGX Report): Prime US REIT: Bottoming Out Expected at Year-End

<p><a href="https://www.smartkarma.com/entities/singapore-press-holdings-limited" target="_blank" data-smartkarma-citation="entities:9952:1" rel="noopener">Singapore Press Holdings (SPH SP)</a>/SPH announced a privatisation offer from <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp (KEP SP)</a>. Keppel is taking private SPH through via a scheme of arrangement. The transaction involves Keppel offering S$0.668 cash per SPH share and 0.596 Keppel REIT units per SPH share along with SPH distributing-in-specie 0.782 SPH REIT units per SPH share. Based on the last close price of <a href="https://www.smartkarma.com/entities/keppel-reit" target="_blank" data-smartkarma-citation="entities:192:1" rel="noopener">Keppel REIT (KREIT SP)</a> and <a href="https://www.smartkarma.com/entities/sph-reit" target="_blank" data-smartkarma-citation="entities:5994:1" rel="noopener">SPH REIT (SPHREIT SP)</a>, the total consideration is S$2.099 per SPH share, which is a 39.9% premium to the share price of S$1.50 on 30 March 2021 (announcement of SPH’s strategic review) and an 11.6% premium to the share price of S$1.88 on 30 July 2021 (last trading day). </p><p>The privatisation proposal is the culmination of the SPH’s strategic review to unlock shareholder value. Keppel's offer was the best offer from several proposals evaluated, according to SPH management. The strategic review commenced with the announcement of the media business restructuring announced on 6 May. Post completion of the media business restructuring (requires approval at the EGM in Aug-Sep), SPH would be released from NPPA restrictions including the 5% shareholding cap restriction. Due to the impending lifting of the 5% shareholding cap, the SPH Board's preference was an offer for the whole SPH, to ensure the emergence of a controlling shareholder.</p><div class="content-highlight"><p>The key conditions for the successful privatisation are the completion of the media business restructuring, regulatory approval, SPH and Keppel shareholder approval. The modest premium/discount to historical long-term multiples and share prices is unlikely to excite long-term SPH shareholders. The offer price is largely designed to appeal to SPH shareholders lacking patience for SPH to unlock value through capital recycling (such as a listing of PBSA assets, disposal of investments), a post-COVID-19 recovery particularly in its property businesses and improving earnings quality through diversifying into defensive assets. Overall, while the implied offer price is not a knockout bid, it is ok in the context of our SoTP valuation (post-media business restructuring). </p></div>

Singapore Press Holdings (SPH SP)/SPH announced a privatisation offer from Keppel Corp (KEP SP). Keppel is taking private SPH through via a scheme of arrangement. The transaction involves Keppel offering S$0.668 cash per SPH share and 0.596 Keppel REIT units per SPH share along with SPH distributing-in-specie 0.782 SPH REIT units per SPH share. Based on the last close price of Keppel REIT (KREIT SP) and SPH REIT (SPHREIT SP), the total consideration is S$2.099 per SPH share, which is a 39.9% premium to the share price of S$1.50 on 30 March 2021 (announcement of SPH’s strategic review) and an 11.6% premium to the share price of S$1.88 on 30 July 2021 (last trading day). The privatisation proposal is the culmination of the SPH’s strategic review to unlock shareholder value. Keppel's offer was the best offer from several proposals evaluated, according to SPH management. The strategic review commenced with the announcement of the media business restructuring announced on 6 May. Post completion of the media business restructuring (requires approval at the EGM in Aug-Sep), SPH would be released from NPPA restrictions including the 5% shareholding cap restriction. Due to the impending lifting of the 5% shareholding cap, the SPH Board's preference was an offer for the whole SPH, to ensure the emergence of a controlling shareholder.The key conditions for the successful privatisation are the completion of the media business restructuring, regulatory approval, SPH and Keppel shareholder approval. The modest premium/discount to historical long-term multiples and share prices is unlikely to excite long-term SPH shareholders. The offer price is largely designed to appeal to SPH shareholders lacking patience for SPH to unlock value through capital recycling (such as a listing of PBSA assets, disposal of investments), a post-COVID-19 recovery particularly in its property businesses and improving earnings quality through diversifying into defensive assets. Overall, while the implied offer price is not a knockout bid, it is ok in the context of our SoTP valuation (post-media business restructuring). 

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    <div class='content-caption'>8 SREIT with exposes to US assets</div>
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<p>SGX lists eight actively traded S-Reits with properties in the United States (US). Five out of the eight S-Reits have pure exposure to the US and among them are three US office S-Reits.<br><br>
The US Centres for Disease Control and Prevention (CDC) on May 13 announced that fully vaccinated individuals do not need to wear masks outdoors and can avoid wearing masks indoors in most places, and updated that life can begin to return to normal despite caution issued by the World Health Organization (WHO).</p>

<p>Nonetheless, US Office S-Reits remain sanguine about companies' return-to-office plans and are adapting to agile and "new normal" arrangements as the US continues to push for normalcy and re-opening of sectors and industries.<br><br>
The three US Office S-Reits trade at an average price-to-book ratio of 0.98 times and average 7.8 per cent in distribution yield. All of the three have average committed occupancy rates of over 90 per cent, above the average Class A US office average of 84 per cent, and have weighted average lease expiry (WALE) that range from 4.3 to 5.3 years.<br><br>
Manulife US Reit (MUST), which has an occupancy rate of 92 per cent, has observed more tenants gradually returning to the office with May 2021's portfolio physical occupancy at 20.0 per cent, versus 13.3 per cent seen in Jan 2021. The Reit notes that offices continue to remain relevant as companies adopt a hybrid model and the majority of employers do require the same if not more office space post Covid-19, driven by the demand for rising headcount and social distancing needs.</p>

<p>MUST sees post-Covid-19 themes such as the acceleration of population and company migration to magnet cities, growing tech sector, strong demand for health care, and fast developing knowledge economy to provide uplift for the Reit. MUST has a focus to target magnet cities which are defined as having attributes such as growing tech tenants, population growth, business friendly and lower costs of living.</p>

<p>Prime US Reit (Prime) sees interest in its assets pick up as tenants make longer-term leasing decisions, despite the current low physical occupancy. Its current portfolio occupancy rate is at 91.7 per cent. Some of its tenants which include Goldman Sachs and Wells Fargo have also made plans for employees to return to the office by July 2021.</p>

<p>In securing new leases, Prime notes that its new tenants are largely from diverse established and technology sectors. The Reit observes that the US office transaction market has shown signs of activity in recent weeks and it is actively exploring acquisition opportunities in its target markets.</p>

<p>Keppel Pacific Oak US Reit (KORE) has a 91.6 per cent portfolio committed occupancy rate and believes that the rollout of vaccines and removal of restrictions is raising confidence and optimism. LaSalle Network's Office Re-Entry Index shows that 70 per cent of CEOs, human resources and finance leaders are planning for employees to return to the office by fall 2021.</p>

<p>KORE has a focus in markets with exposure to technology hubs and tech-tenancy. Its recent leasing activities are driven mainly by demand from professional services, finance and insurance, and technology. Over 37 per cent of its current portfolio by net lettable area comprises tenants from technology and medical and healthcare. <br><br><strong><em>REIT Watch is a weekly column on The Business Times, <a href="https://www.businesstimes.com.sg/companies-markets/us-office-s-reits-half-empty-or-half-full">read</a> the original version.</em></strong></p>
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    8 SREIT with exposes to US assets


SGX lists eight actively traded S-Reits with properties in the United States (US). Five out of the eight S-Reits have pure exposure to the US and among them are three US office S-Reits.  
The US Centres for Disease Control and Prevention (CDC) on May 13 announced that fully vaccinated individuals do not need to wear masks outdoors and can avoid wearing masks indoors in most places, and updated that life can begin to return to normal despite caution issued by the World Health Organization (WHO).

Nonetheless, US Office S-Reits remain sanguine about companies' return-to-office plans and are adapting to agile and "new normal" arrangements as the US continues to push for normalcy and re-opening of sectors and industries.  
The three US Office S-Reits trade at an average price-to-book ratio of 0.98 times and average 7.8 per cent in distribution yield. All of the three have average committed occupancy rates of over 90 per cent, above the average Class A US office average of 84 per cent, and have weighted average lease expiry (WALE) that range from 4.3 to 5.3 years.  
Manulife US Reit (MUST), which has an occupancy rate of 92 per cent, has observed more tenants gradually returning to the office with May 2021's portfolio physical occupancy at 20.0 per cent, versus 13.3 per cent seen in Jan 2021. The Reit notes that offices continue to remain relevant as companies adopt a hybrid model and the majority of employers do require the same if not more office space post Covid-19, driven by the demand for rising headcount and social distancing needs.

MUST sees post-Covid-19 themes such as the acceleration of population and company migration to magnet cities, growing tech sector, strong demand for health care, and fast developing knowledge economy to provide uplift for the Reit. MUST has a focus to target magnet cities which are defined as having attributes such as growing tech tenants, population growth, business friendly and lower costs of living.

Prime US Reit (Prime) sees interest in its assets pick up as tenants make longer-term leasing decisions, despite the current low physical occupancy. Its current portfolio occupancy rate is at 91.7 per cent. Some of its tenants which include Goldman Sachs and Wells Fargo have also made plans for employees to return to the office by July 2021.

In securing new leases, Prime notes that its new tenants are largely from diverse established and technology sectors. The Reit observes that the US office transaction market has shown signs of activity in recent weeks and it is actively exploring acquisition opportunities in its target markets.

Keppel Pacific Oak US Reit (KORE) has a 91.6 per cent portfolio committed occupancy rate and believes that the rollout of vaccines and removal of restrictions is raising confidence and optimism. LaSalle Network's Office Re-Entry Index shows that 70 per cent of CEOs, human resources and finance leaders are planning for employees to return to the office by fall 2021.

KORE has a focus in markets with exposure to technology hubs and tech-tenancy. Its recent leasing activities are driven mainly by demand from professional services, finance and insurance, and technology. Over 37 per cent of its current portfolio by net lettable area comprises tenants from technology and medical and healthcare.   REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - US office S-Reits - half empty or half full?

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.<br></em></div>
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<h2>PRIME US REIT</h2>
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<h3>Towards normalisation</h3>
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<li>1Q21 NPI and distributable income met 23% of our FY21e estimates. Portfolio occupancy dipped 0.7% to 91.7%.</li>
<li>99% rent collection with minimal lease expiries of 8%/8.4% in FY21e/FY22e, evenly spread across properties. Leasing pick-up expected with greater return to offices.</li>
<li>Downgrade to ACCUMULATE from BUY as recent share-price improvements have likely priced in some positives. DDM target price of US$0.94 (COE 9.5%) unchanged.</li>
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<p><strong>The Positives</strong></p>
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<li>1Q21 largely in line. Although Covid-19 cases in the U.S. hit new highs in January, Prime’s income was resilient. Rent collection remained strong at 99% with minimal rent concessions. Gross revenue and net property income were steady YoY. Property expenses increased 11.7% YoY due to a full quarter’s share of Park Tower’s expenses, acquired on 24 Feb 2020.</li>
<li>High renewals; minimal FY21 expiries. In 1Q21, Prime signed 57,647 sq ft of leases at positive rental reversions of 9.5%. More than 80% were renewals or for expansion by existing tenants. Leases were signed with Extend Health, CBRE and FLS Transportation, among others. Prime also signed 22,437 sq ft of short-term extensions. Leases due to expire in FY21 account for only 8% of cash rental income (CRI). These expiries are well spread across its properties with none above 1.4%. Month-to-month leases constitute only 0.7% of CRI.</li>
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<p><strong>The Negative</strong></p>
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<li>Portfolio occupancy dipped 0.7% to 91.7%. Several properties’ occupancy dipped QoQ. The more notable declines were at 222 Main in Salt Lake City and Promenade I &amp; II in San Antonio. 222 Main’s occupancy fell 3% to 90.9%. That of Promenade I &amp; II retreated 3.6% to 93.9%. The main reason was a few tenants left the buildings. January’s Covid-19 spike halted leasing in those markets. As such, portfolio occupancy eased 0.7% to 91.7%. Still, this was well above the Class A office average of 84.3%.</li>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report. 





PRIME US REIT




Towards normalisation





1Q21 NPI and distributable income met 23% of our FY21e estimates. Portfolio occupancy dipped 0.7% to 91.7%.
99% rent collection with minimal lease expiries of 8%/8.4% in FY21e/FY22e, evenly spread across properties. Leasing pick-up expected with greater return to offices.
Downgrade to ACCUMULATE from BUY as recent share-price improvements have likely priced in some positives. DDM target price of US$0.94 (COE 9.5%) unchanged.




















The Positives

1Q21 largely in line. Although Covid-19 cases in the U.S. hit new highs in January, Prime’s income was resilient. Rent collection remained strong at 99% with minimal rent concessions. Gross revenue and net property income were steady YoY. Property expenses increased 11.7% YoY due to a full quarter’s share of Park Tower’s expenses, acquired on 24 Feb 2020.
High renewals; minimal FY21 expiries. In 1Q21, Prime signed 57,647 sq ft of leases at positive rental reversions of 9.5%. More than 80% were renewals or for expansion by existing tenants. Leases were signed with Extend Health, CBRE and FLS Transportation, among others. Prime also signed 22,437 sq ft of short-term extensions. Leases due to expire in FY21 account for only 8% of cash rental income (CRI). These expiries are well spread across its properties with none above 1.4%. Month-to-month leases constitute only 0.7% of CRI.

The Negative

Portfolio occupancy dipped 0.7% to 91.7%. Several properties’ occupancy dipped QoQ. The more notable declines were at 222 Main in Salt Lake City and Promenade I &amp; II in San Antonio. 222 Main’s occupancy fell 3% to 90.9%. That of Promenade I &amp; II retreated 3.6% to 93.9%. The main reason was a few tenants left the buildings. January’s Covid-19 spike halted leasing in those markets. As such, portfolio occupancy eased 0.7% to 91.7%. Still, this was well above the Class A office average of 84.3%.







(Non-SGX Report) PRIME US REIT: Towards Normalisation

Singapore

Prime US REIT is a Singapore-based real estate investment trust that invests in stabilized income-producing Class A freehold office properties in key markets across the United States. It aims to provide unitholders with regular and stable distributions and long-term growth in distribution per unit and net asset value per unit. The REIT was listed on the Main Board of the Singapore Exchange on July 19, 2019, and is headquartered in Singapore.

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Prime US REIT (PRIME SP)

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