[First and Fastest Update!] PRIME REIT 1Q Update: Doing Shareholder Friendly Actions, Expected Dividends to be down 30%

 PRIME REIT just released its 1Q results. And i bet I am probably the first one to report on its latest results among all the financial bloggers.

Summary (TLDR)

• Revenue Flat
• Net Income (down by 20%)
• Overall Dividends likely to be down by at least 30% (6.52 cents down to 4.5 cents annualised)
• My View it is a 12.5% dividend yielder

Shareholder Friendly Action

To me, this is the best act by the REIT manager. Previously an AGM question (fielded by me) is that the REIT manager was taking a lotof proportion of fees in shares and given the current low REIT price, shareholders were getting diluted badly and future dividends will be badly affected at a compound rate of 2% per year. (Question 3 under Section C Distribution, PDF Page 8)

With the management taking full cash, this has caused the distribution to fall by 10%; but the long term value of shareholders stake in PRIME's property is safe because there is no large dilution. This is similar to what Keppel Pacific REIT had done where the manager decided to do the good act of taking its fee in 100% cash to prevent shareholders from being diluted. This is good news.

Expected Future Dividends to be Reduced by 30%

For FY 2022, PRIME REIT gave about 6.52 cents to shareholders. However, as revenue was flat and interest expenses went up (3.4%-3.7%), this has resulted in dividends falling by 29%.

I expect further downside in dividends as the rental reversions will be offset by increase in interest expense. Assuming the continous distribution of 100% of income to shareholders, I expect from FY2023 onwards, it will be 4 or 4.5 cents in dividends. At current price of 23.5 cents, the REIT is a 17% dividend yielder.

Leverage Ratio has Increased

Based on the latest snapshot of PRIME's financial situation (see below), leverage ratio has increased from 42.1% to 43.7%, this is slightly dangerous. Interest expenses has increased as well (3.4% up to 3.7%)

Conclusion

I forsee PRIME REIT's dividend will be reduced to, at best, an annual 4.5 cents dividend. However, realistically, I am looking at it as a 4 cents yielder (assuming 100% distributable income).

Given the operational risk in the US office space, I estimate the REIT to be a bargin until it is a 12.5% dividend machine. This puts it at a target price of $0.32.

I am looking forward to better financial decisions by the REIT manager such as reducing the distibutable income from 100% to 90% (so as to save and pay down the increasingly expensive debts). 

I hope the manager evaluates taking debts at Singapore level, converting it to USD to pay off its USD loans. Taking loans in Singapore is a lot cheaper than taking it from USA banks because the credit conditions in Singapore allows for it.

If PRIME REIT reduces its distributable income and is able to negotiate for a Singapore bank loan at less than 4.5% effective interest rate, the REIT can be safely valued at 9% of its final dividends given.

Until then 0.32 cents is where I think the REIT is worth. The 1Q updates carried a positive tone and hopefully this brings a turn of better fortunes for the embattled REIT.

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Disclaimer: The publication of my posts is solely for informational purposes and is not to be construed as a solicitation or financial advice as I am not a certified financial adviser. My analysis on companies covered are not an offer to buy or sell any stocks and I encourage readers to do your own due diligence before investing.