DBS Group Research analysts Rachel Tan and Derek Tan have downgraded Prime US REIT OXMU to “fully valued” from “hold”, with a lower target price of 7 US cents from 18 US cents previously.
The analysts are taking a preemptive stance prior to Prime US REIT’s results release. This is as they consider the potential domino effect from its peer Keppel Pacific Oak REIT, which took a hard stance in a surprise move to suspend distributions despite its financial metrics falling within limits.
“Prime US REIT has weaker financials and faces the risk of its gearing spiking to above the 45% Monetary Authority of Singapore limit should its asset value decline by more than for its peers,” the analysts add.
The REIT’s current high gearing of above 40% could potentially escalate into a concern should its asset valuation decline more than expected. That said, the extension of debt expiry by one year to 2024 gives more time for the trust to ride out the interest rate hike cycle.
The analysts note that refinancing risks would remain in 2024, especially for the US office sector should the credit crunch last longer than expected.
They also highlight that Prime US REIT’s portfolio occupancy has been on a declining trend and will likely weigh down on portfolio performance should backfilling take longer than expected. “We remain hopeful that the green shoots of increasing leasing discussions could cause a turnaround in the US office outlook,” the analysts say.
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DBS pegs its target price to 0.11x price to net asset value (NAV), assuming the NAV could decline by another 15%.
As at 2.47pm, units in Prime US REIT are trading 0.6 US cents higher or 5.9% up at 10.7 US cents.
