What Investors Should Know About Prime US REIT's (SGX: OXMU) 2020 First-Quarter Business Update
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What Investors Should Know About Prime US REIT's (SGX: OXMU) 2020 First-Quarter Business Update

Sudhan P
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Prime US REIT (SGX: OXMU), which was listed on the Singapore stock market on 19 July 2019, is a real estate investment trust (REIT) that invests in US office properties.

Prime US REIT’s portfolio consists of 12 prime and freehold office properties strategically located in ten primary markets of the US.

Prime US REIT overview
Source: Prime US REIT 1Q2020 business update presentation

For those interested to invest in Prime US REIT, here are some highlights from its business update for the first quarter of 2020.

How Did Prime US REIT Perform in the Latest Quarter? 

For the period from 1 January to 31 March 2020, Prime US REIT posted gross revenue of US$35.1 million, up 4.1% from its IPO projection.

Gross revenue is money a REIT receives from its tenants mainly through the rentals.

Meanwhile, net property income (NPI) and distributable income also did better than projections, as seen below.

Prime US REIT 1Q2020 highlights

Source: Prime US REIT 1Q2020 business update presentation

Prime US REIT’s first-quarter better-than-expected performance was mainly due to accretive acquisition of Park Tower in Sacramento on 24 February 2020, higher NPI from its IPO portfolio, and lower expenses.

Prime US REIT’s 2020 first-quarter NPI is also well-diversified since no property contributed more than 16% of the figure.

NPI represents the amount left after deducting property-related expenses such as property management fees, property tax, and maintenance expenses from gross revenue. 

Prime US REIT 1Q2020 net property income breakdown

Source: Prime US REIT 1Q2020 business update presentation

The latest addition to Prime US REIT, Park Tower, contributed around 6% of the latest NPI.

How Strong is Prime US REIT’s Balance Sheet?

As of 31 March 2020, Prime US REIT’s gearing ratio stood at 33.7%, below the revised regulatory limit of 50% for REITs.

The latest gearing ratio is also below the threshold of 40% I look at when investing in Singapore REITs.

On top of its strong gearing ratio, Prime US REIT’s interest expense is also well-covered with an interest coverage ratio of 5.8x.

The interest cover ratio shows how well a REIT can pay interest on its outstanding loans. Generally, the higher the ratio, the better it is.

Prime US REIT balance sheet highlights
Source: Prime US REIT 1Q2020 business update presentation

We can also compare a REIT’s balance sheet strength with its peers to see where it stands.

On that front, Prime US REIT has done better than two other commercial REITs with US assets — Keppel Pacific Oak US REIT (SGX: CMOU) and Manulife US REIT (SGX: BTOU) — that are also listed in Singapore.

 Prime US REITKeppel Pacific Oak US REITManulife US REIT
Gearing ratio33.7%36.9%37.7%
Interest coverage ratio 5.8x4.2x3.8x

Did Prime US REIT Get Affected By COVID-19?

Prime US REIT updated the market that it is “actively working with our tenants to navigate through the economic impact of COVID-19” and that to date, it has collected almost all of its rent.

Prime US REIT Covid-19 update
Source: Prime US REIT 1Q2020 business update presentation

With a strong portfolio occupancy rate of 94.9% and a weighted average lease to expiry of 4.9 years, coupled with its strong balance sheet, Prime US REIT is poised to ride through the COVID-19 storm relatively unscathed.

At Prime US REIT’s unit price of US$0.79, it has a price-to-book ratio of around 0.9x (based on net asset value per unit at end-2019) and a distribution yield of 8.5% (based on IPO projections for 2020 full-year).

What Are Your Thoughts on Prime US REIT?

Check out the Seedly Community and participate in the discussion surrounding REITs like Prime US REIT (SGX: OXMU) and many more!

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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