Prime US REIT

[weijian]

While I know that share price movements is not a good topic to speak about for stock analysis here. I need to use it as a reference. For the past 3 months, the share price of Prime US has gyrated between 9 cents and 20 cents. Much of the price movement has been un-related to the company such as the suspension of dividends by Keppacoak or the sudden delay in FY reported by Keppelpacific. The price discovery of this REIT is in a flux and any small news can lead to a large % change which investors will not expect for in REITs

The only related share movement (down by 10%) is due to the resignation of its CEO at short notice.

PRIME is in the weak US office market and among the 3 REITs, it has the youngest property portfolio which explains why its CAPEX has been relatively lower than Keppel and Manulife.

However for those investors to be, the debt profile of PRIME shows that it has a maturing bank loan of US$478 million (~70%) which it is in the process of negotiaiting with banks to renew in July 2024. This is the Damascus sword hanging over the REIT. A successful renewal and we could see share prices doubling. If the loan facility is downsized to below US$478 mil, I will not be surprised that a rights raising will be done.

The REIT is setting aside US$40 million by reducing its dividends in case things go south. With free cash generation ability of about US$50 million per annum, it is definitely a good REIT to own (but only after the conclusion of the debt renewal for July 2024).

hi CY09,

Didn't PRIME US Reit announced a 90% cut in dividend ~1 month back? With the new dividend, annualized yield is ~mid single digits, which is actually lower than many S-REITs. And when they announced a 1-for-10 bonus issue, it may also have an effect to reduce the share price post XD.

The 3 US Reits borrowing for CAPEX rather than funding it through cashflow, reminds me of the way that Trusts' structure work, ie. paying distributions out of cashflow. A few noticeable names listed on SGX like APTT and HPT comes to mind. For the latter, it was also hit with its portfolio of ports losing competitiveness to Mainland China ports. It is quite similar to the structural decline in CRE occupancy/ demand for US office REITs.

In a recent podcast, Bill Ackman said something instructive - In investing, we don't have to make money back the way we lost it.