Prime US REIT reports 1H21 net property income edged lower on higher property expenses

U.S. one-dollar and five-dollar currency notes; taken September 2018.U.S. one-dollar and five-dollar currency notes; taken September 2018.

Prime US REIT reported Tuesday its first half net property income slipped 2.3 percent on-year to US$46.34 million as an increase in property expenses outran higher gross revenue.

Gross revenue for the January-to-June period edged up 1.2 percent on-year to US$72.07 million, largely as the Park Tower, which was acquired in February 2020, contributed for the full six-month period, the REIT said in a filing to SGX.

Property expenses for the period increased by 8.3 percent on-year to US$25.73 million on the Park Tower’s full six-month expenses and on higher property taxes for the 101 South Hanley property, the filing said.

The distribution per unit (DPU) came in at 3.33 U.S. cents for the first half, down 5.4 percent from 3.52 U.S. cents in the year-ago period. For the 1 January to 5 July period, Prime had a cumulative distribution of 3.42 U.S. cents due to a private placement launched in late June.

The payment date for the distribution is 20 August.

The portfolio’s occupancy was high at 91.7 percent in the period, above the U.S. occupancy average of 89.3 percent for the 4/5 star properties, Prime said.

Barbara Cambon, CEO and chief investment officer of the REIT’s manager, said she was pleased with the REIT’s “stable and resilient performance.”

“The strategic timing of the acquisitions of two high quality assets — One Town Center and Sorrento Towers — will contribute positively to portfolio performance in the second half of 2021,” she said in the statement. “We believe non-gateway markets will continue to provide superior risk-adjusted returns, and the extension of our presence into key growth markets and sectors presents significant future growth opportunities for us.”

In June, Prime US REIT entered deals to acquire the two properties, located in California and Florida, for around US$245.5 million, which it financed with a combination of loans and a private placement of new units.

Cambon added the deals moved the REIT closer to being included in the FTSE EPRA NAREIT index, which would help to institutionalise the unitholder registry and improve trading liquidity.

Rental reversions came in at 9.3 percent in the first half, but that was offset by declines in car park revenue and occupancy, the filing said.

In its outlook, the REIT pointed to positive signals as the U.S. economy begins to open up after pandemic-related restrictions.

“Nearly 1.7 million jobs were replaced at the end of 2020 with an additional 389,000 office-using jobs created in the first half of 2021,” the REIT said, adding the country’s overall leasing in the second quarter grew 15 percent on-quarter. In addition, even as vacancies rose, national asking rents increased 0.9 percent on-quarter, the REIT said.

“Return to office continues to be a point of emphasis as many companies have indicated dates employees are expected to return through varying points of 2021,” Prime said.

Prime US REIT has a portfolio of 12 class-A freehold properties across 11 U.S. office markets; the portfolio has a carrying value of US$1.41 billion as of end-June.

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