PRIME REIT: No Surprises, with a Dividend Yield of more than 20%

As posted previously, PRIME released a set of first half financial results which had no negative surprises.

Summary

• Expected Positive Rental Escalations and Revenue Growth
• Leverage Ratio Grew at 42.8%
• Dividends at 2.4 US cents, expected second half 2.0 US cents (Dividend Yield of 23% at current price of 18.8 US Cents)

What the Financial Reports Said

PRIME's Largest tenant has extended its lease in July 2023. There is no negative downward revaluation, instead there is a slight upward revaluation of US$10 million which is not significant.

Positive rental of +9.5% was achieved which negated declining occupancy and hence revenue only fell by 2%. Revenue is expected to grow from 2H2023 as occupancy will start to improve and with less tenants vacating

Buffer in Leverage Ratio

That said, PRIME's leverage ratio of 42.8% is not far off from the regulatory limit of 50%. Personally, I expected PRIME to start setting aside some cash and not distribute all as dividends. This is because with more cash, the REIT will be able to pay down its debts which helps to reduce the leverage ratio.

Prospects

With an expected one more rate hikes for 2H2023 and the full effects of an elevated interest rate environment, for the second half of the year, we can expect dividends of 2.0 US cents.

At 23% expected dividend yield, PRIME is undervalued.