CO-WORKING space operator WeWork has approached Prime US Reit with a proposal to restructure its lease at the latter' s Class A office property in California, and discussions are ongoing.

 

The tenant, a wholly-owned subsidiary of WeWork, occupies 56,977 square feet (sq ft) within Tower I at Emeryville, out of the building' s net lettable area of 222,606 sq ft.

 

WeWork' s website states that its shared office space takes up three floors of the 12-storey tower, and includes hot desking spaces, dedicated desks, and private offices.

 

The tenant contributes less than 2.5 per cent of Prime US Reit' s cash rental income as at end-March, the real estate investment trust' s (Reit) manager said in a bourse filing on Thursday evening.

 

It added that the tenant has been current on its rental obligations till mid-June 2021, and the lease terms are " currently under evaluation" .

 

Prime US ReitUSD: OXMU +0.58%   has called on the tenant to continue to meet its rental obligations, and also called upon the existing security package for the payment of such obligations.

 

Prime US Reit' s security in relation to that WeWork lease consists of a combination of protections. If the counterparty honours its obligations, such protections will cover the tenant' s monthly lease obligations through as much as end-2022, the manager noted.

 

The manager also said it does not expect the matter to have any impact on the distribution per unit of Prime US Reit for the current financial year, in light of the security.

 

Also, based on the independent valuation advice sought by the manager, this will not materially affect the value of the Reit' s portfolio as compared to the portfolio appraisal conducted as at last December.

 

The manager will release further announcements as necessary if there are material developments on this matter.

 

It added that " notwithstanding the above, rental collections across the portfolio have remained resilient in 2021 and continue to trend in line with collection rates achieved in 2020" .

 

Separately, Prime US Reit has upsized its US$470 million credit facility to US$600 million, and adjusted the covenants with the existing bank lending group.

 

This additional liquidity will be " readily available" for capital needs within the portfolio and for future property acquisitions, thus enabling Prime US Reit to " compete more effectively in the US property acquisition markets" , said the manager' s deputy chief executive and chief financial officer, Harmeet Bedi.

 

PRIME US Reit posted net property income of US$23.0 million (S$30.6 million) for the first fiscal quarter ended March, down 2 per cent from US$23.5 million in the corresponding quarter last year.

 

Gross revenue for the quarter rose 2.5 per cent to US$35.9 million from US$35.1 million, said the Reit in its key business and operational update on Tuesday.

 

Meanwhile, distributable income for Q1 fell 1.2 per cent to US$17.6 million from US$17.8 million in the year-ago period.

 

The Reit' s manager said a " solid rent collection rate" of 99 per cent was maintained in the quarter, with minimal rent concessions made.

 

In terms of leasing activity in Q1, Prime US Reit booked a total of 80,084 sq ft leased at a positive rental reversion of 8.5 per cent. This includes 57,647 sq ft of long-term leases with a positive rental reversion of 9.5 per cent.

 

Over 80 per cent of the Reit' s long-term leases were from renewals or the relocation of existing tenants. It had also signed leases with Extend Health, CBRE and FLS Transportation.

 

Prime US Reit' s portfolio has a weighted average lease expiry (Wale) of 4.3 years, and a valuation of US$1.41 billion. The Reit' s gearing ratio stands at 33.8 per cent, with a debt headroom of US$290 million at a gearing covenant limit of 45 per cent.

 

The Reit' s upcoming lease expiries are also well spread across its portfolio, which would therefore reduce any risks of single asset exposure.

 

The Reit has 12 assets across 11 primary markets, with no single asset contributing more than 16 per cent of total portfolio valuation and no single market contributing more than 13.5 per cent of total cash rental income.

 

In its update, Prime US Reit also noted that a significant majority of businesses across sectors are expected to progressively return to office in the coming months. Those expecting to permanently stop using office space constitute a " very small percentage" , added the Reit manager.

 

" By leveraging technology, implementing protective measures and having close communications with tenants, we work closely with our experienced asset management team to provide a safe and healthy environment as tenants gradually return to the office," said Barbara Cambon, chief executive and chief investment officer of the manager of Prime US Reit.

 

" Coupled with prudent and proactive capital management, Prime is nimble and well-positioned to pursue accretive acquisitions and attract prospective tenants in growth industries."

 

A RECENTLY-ADDED property and a pick-up in leasing momentum have buoyed office-focused Prime US Reit results amid the pandemic. The Reit posted a distribution per unit (DPU) of 3.42 US cents for H2 ended December 2020. This is 8.4 per cent higher than the comparable period in 2019, from its July 19 listing date to the year-end.

 

Prime US Reit' s portfolio was " highly resilient" in FY2020, said its manager, with full-year DPU coming in at 6.94 US cents, 3.6 per cent higher than its IPO forecast.

 

The Reit recorded US$72.4 million in gross revenue and US$47.5 million in net property income (NPI) for H2, higher than the comparable year-ago period by 19.3 per cent and 18.3 per cent respectively.

 

The H2 performance was boosted by contributions from Park Tower, which it acquired in February last year, although it was partially offset by declines in parking revenues.

 

The Reit' s distributable income came in at US$36.2 million for H2, 24.1 per cent higher than the year-ago period. This was boosted by lower interest costs and other trust expenses.

 

For FY2020, the Reit recorded US$143.6 million in gross revenue and S$95 million in NPI. Distributable income stood at US$72.1 million, 15.6 per cent higher than forecast. Based on Prime US Reit' s closing price as of Dec 31, its DPU yield was 8.8 per cent.

 

In a commentary accompanying the results, Prime US Reit said that its portfolio remained resilient, with average collections of 99 per cent for the year and " minimal" rental deferrals. The portfolio occupancy was 92.4 per cent as at December 2020.

 

Leasing momentum had also picked up in H2, with 142,673 sq ft leased at an 8.7 per cent rental reversion. Overall FY2020 leasing volume stood at 225,222 sq ft, with a positive rental reversion of 7.2 per cent.

 

Uncertainty remains as tenants continue to review their requirements and flexible working arrangements, the Reit manager noted. Nevertheless, it believes that Prime US Reit can benefit from a " flight to quality" among tenants to its " well-located and highly amenitised" assets.

 

The Reit will look to grow through " accretive acquisitions opportunities" , said Barbara Cambon, chief executive of the Reit manager. It is also aiming for inclusion in the FTSE EPRA NAREIT index.

 

" Our strategy to build a well-diversified portfolio in favourable US office markets, and our focus in the technology and established industry sectors, continues to underpin our success and demonstrates Prime' s diversity and income resiliency in these uncertain times," she said.

 

" As tenants gradually return to the office, our experienced asset management team continues to employ technological solutions to assist existing tenants in office planning as well as to enhance Prime' s leasing prospects."

 

The Reit' s gearing stood at 33.5 per cent as at end-2020, and it has a fully extended debt maturity of 4.6 years. Its effective interest rate on borrowings was 2.7 per cent, with an interest coverage ratio of 5.8 times as of end-2020.

 

PRIME US Reit reported a net property income of US$24.2 million in the third quarter, exceeding IPO projections by 9.8 per cent, according to an exchange filing on Thursday evening.

 

Its gross revenue also outperformed IPO forecasts by 9.1 per cent at US$36.7 million, while distributable income stood at US$18 million, outdoing projections by 15.4 per cent.

 

This was attributed to strong rental collections at 99 per cent with minimal deferrals and robust leasing activity of 83,168 square feet in Q3 with 8.9 per cent positive rental reversion, the real estate investment trust (Reit) manager said.

 

With a net asset value per unit of US$0.86, the Reit manager said, Prime maintains a conservative debt maturity profile and a healthy gearing ratio of 32.7 per cent. It added that it has ample debt headroom of US$324 million with US$98.9 million of undrawn facilities.

 

Prime has fixed interest rates on 91.4 per cent of its debt and a fully extended weighted average debt to maturity of 4.9 years, the Reit manager said. Its interest coverage was 5.8 times for the period ended Sept 30, and effective interest cost was a low 2.7 per cent, following the restructuring of its interest rate swaps in April, it said.

 

" As tenants return to the office, we work closely with our asset management team to enhance health and safety measures by leveraging technology, improving building operations and facilitating social distancing and hygiene standards across our properties," Barbara Cambon, chief executive and chief investment officer of the manager of Prime, said.

PRIME US Reit' s distribution per unit (DPU) stood at 3.52 US cents for its first half ended June 30, 2020, 5.1 per cent higher than its initial public offering (IPO) forecast of 3.35 cents.

 

It comprises an advance distribution of 0.96 US cent per unit for the period of Jan 1 to Feb 20 which has already been paid out, and a second distribution of 2.56 US cents from Feb 21 to June 30.

 

The higher DPU posted was due to higher net property income (NPI) and lower trust and interest expenses, in addition to the accretive acquisition of Park Tower in Sacramento on Feb 24, according to the real estate investment trust' s (Reit) manager on Thursday.

 

NPI was US$47.5 million for the first half, 7.6 per cent higher than its IPO forecast of US$44.1 million.

 

The rise was due to contributions from Park Tower, partially offset by the short-term reduction in demand for parking.

 

Gross revenue was US$71.2 million for the first half, 5.7 per cent above its forecast of US$67.4 million, also largely due to contributions from Park Tower.

 

Income available for distribution to unitholders was US$35.9 million for the period, 15 per cent above the IPO forecast of US$31.2 million.

 

The second distribution of 2.56 US cents will be paid out on Sept 23, after books closure on Aug 17. The first advanced distribution was paid on March 30.

 

Barbara Cambon, chief executive and chief investment officer of the manager, said: " Our priority remains to maximise returns to unitholders through the execution of a proactive lease management strategy to capture growth, ensure stability and minimise risks during this trying period."

 

As at June 30, Prime US Reit' s portfolio occupancy stood at 93 per cent, with weighted average lease expiry at 4.8 years.

 

The Reit had about 98 per cent of leases with rental escalations. Aggregate leverage was at 33 per cent.

 

Rental collections for the second quarter " remained strong" at 99 per cent, with a positive rental reversion of 8.5 per cent on long-term leases and over 60 per cent of leases renewed by existing tenants.

 

No single property contributes more than 15.3 per cent of NPI, the manager said.