1Q2022 Business Update: Looking forward to better days ahead
- 1Q22 estimated DPU of 1.79 UScts +8% y-o-y mainly from newly acquired assets, in line. On q-o-q, est DPU +4%.
- Key positives: i) reversions remained positive though lower at 3.4%; ii) better leasing momentum in 1Q22 and going into 2Q22 to-date, iii) physical occupancy continue to improve
- Key negatives: i) portfolio occupancy fell below 90% mainly from Tower 1 at Emeryville and at a number of larger buildings; ii) 23k sqft short term leases signed in 1Q22, flat q-o-q
- We currently have a BUY rating; TP of US$1.00
Summary of results (US$’m) | 1Q2022 | 4Q2021 | %q-o-q | 1Q2021 | % y-o-y |
Revenue | 40.8 | 44.2 | -7.7% | 35.9 | 13.6% |
NPI | 25.4 | 27.6 | -7.6% | 23.0 | 10.4% |
DI | 20.9 | 20.2 | 3.7% | 17.6 | 19.0% |
DPU (est) | 1.79 | 1.73 | 3.5% | 1.66 | 7.8% |
Portfolio occupancies (%) | 89.9% | 90.3% | -0.4 ppt | 91.7% | -1.8 ppt |
Rental reversions | 3.4% | 7.8% | -4.4 ppt | 8.5% | -5.1 ppt |
WALE (years) | 4.2 | 4.2 | – | 4.3 | (0.1) |
Gearing (%) | 39.1% | 37.9% | 1.2 ppt | 33.8% | 5.3 ppt |
Av cost of debt (%) | 3.1% | 3.0% | 0.1 ppt | 2.8% | 0.3 ppt |
ICR (x) | 5.4 | 5.4 | – | 5.8 | (0.4) |
Leases expiring in FY2022 | 9.5% | 11.0% | -1.5 ppt | 8.4% | 1.1 ppt |
Leases expiring in FY2023 | 17.6% | 17.5% | 0.1 ppt | 18.4% | -0.8 ppt |
Source: Company, DBS
Key Highlights / Observations
Portfolio occupancy fell to below 90% largely from Tower 1 at Emeryville and several other buildings; leasing momentum improved with stronger reversions on leases signed post 1Q22
- Portfolio occupancy declined to below 90% mainly from Tower 1 at Emeryville which saw occupancy fell to below 60% and various other buildings which saw occupancy decline as well. Portfolio occupancy declined further by 0.4ppt q-o-q to 89.9% vs 90.3% in 4Q21, mainly from Tower 1 at Emeryville (-11.5ppt q-o-q to 58.9%) and various other buildings with larger decline from Sorrento Towers (-1.8ppt to 98.1%), Tower 909 (1.5ppt to 86.7%), One Washingtonian Center (-1.5ppt q-o-q to 79.1%) and 171 17th Street (-1ppt to 91.9%). This was partially offset by improvement in occupancy at 222 Main (+3.7 ppt to 95.8%), Crosspoint (+5.4 ppt to 100%) and One Town Center (+1.7ppt to 96.4%).
- Leasing momentum improved with 171k sqft of leases completed in 1Q22 and another 46k sqft was signed after the quarter. Leasing momentum appears to have improved with 171k sqft of leases completed in 1Q22 and another 46k sqft was signed after the quarter. Although majority were renewals, new leases have improved to 55k sqft vs an average of 23k sqft of new leases were signed per quarter in FY21.
- Short term leases remained high at 32k sqft vs 33k sqft in 4Q21. PRIME executed 32k sqft of short term leases (<1 year lease) in 1Q22, similar to 4Q21.
- Rental reversions +3.4%, lower quantum vs previous quarters but expected to improve going into 2Q22. Rental reversions remained positive but a lower quantum at +3.4%. Including leases signed in 2Q22 to-date, cumulative rental reversions will improve to +6%.
- Physical occupancy is improving with 1Q22 parking income increasing by 30% y-o-y.
- Corporations are progressively returning to office with the adoption of a hybrid model centering on 3 days a week in the office.
PRIME US REIT currently trades at c.9% FY22F yield and 0.9x P/NAV.
More details after the briefing tomorrow.
We are hosting PRIME US REIT for its post business update investor outreach tomorrow, Thursday, 12 May @ 11.30am.