Prime US REIT started at Buy by Maybank KE

U.S. five dollar currency notes bills; taken September 2018.

Maybank KimEng started Prime US REIT at Buy, with a US$1.00 target price, pointing to its diversified portfolio of U.S. office properties with steady income growth potential.

“Its asset quality, geographical diversity, tenancy profile and capital management are comparable to if not better than its closest S-REIT
peers,” the brokerage said in a note Monday. “We believe its distributions are well-supported by a favorable debt profile and efficient tax structure, which minimizes cash taxes payable.”

The REIT has 11 commercial assets across nine U.S. cities, and tenancies suggest low concentration risks, the note said. The overall portfolio occupancy is at 96.7 percent, with nine of the properties at a committed occupancy of above 95 percent, the note said.

“Built-in rental escalations, a favorable office outlook in most of its U.S. markets and potential for positive rental reversions should support
organic income growth,” Maybank KimEng said.

While the REIT doesn’t have a right-of-first-refusal for assets from its sponsor, PRIME US REIT could still acquire some of its assets or tap its expertise for third-party deals, the note said.

“This should support acquisition growth opportunities, and upside risks to our forecasts,” the brokerage said.

The REIT trades at 7.0 percent to 7.3 percent distribution per unit yields for 2019-20, above its office Singapore REIT peers’ 4.2 percent to 5.9 percent and other U.S.-listed REITs’ 2.8 percent to 5.6 percent, the note estimated.

The unit price was flat at S$0.90 at 2:10 P.M. SGT.

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