Friday 6 October 2023

A 30% Dividend US REIT- Right here in Singapore!

There is a REIT in Singapore which is currently priced at 32% dividend yield with a "regulatory safe" debt ratio of 42.8%.

Yes no kidding, it is forecasted to give US 4 cents in dividends and at its current share price of 12.3 cents, it gives a 32% dividend yield. This is the highest US dividend REIT in the whole world! The name of the REIT is Prime US which has Keppel Corporation as one of its main shareholders.

What is the Danger?

While it seems to pass all of MAS's requirements based on current ratio ((1) Leverage ratio of 42.8%, below 45%, (2) Interest Coverage ratio of 3.4 times, above the 2.5 times requirement), there seems to be a reason that the market is pricing the REIT at the same distressed levels of Manulife US REIT.

Possibility of Tenants Vacating

What caused Manulife US REIT to breach MAS's regulatory requirements was due to a few of its big tenants (such as The Children's place) terminating its leasing contract early or not continuing its lease. This resulted in a revaluation which pushed down its asset prices and in turn making it breach the regulatory 50% leverage ratio

PRIME has been silent but the recent share price decline indicates something has happened. Is there a possibility that PRIME's REIT manager are not honest and been hiding news which a few market participants know?

Valuation of Properties Falling such that it Breaches above the 50% Leverage Ratio

The other possibility is that the value of PRIME properties are going to be massively impaired (more than 15%) which will result in it breaching above the 50% leverage ratio. However, for it to be impaired so severely, a large percentage of its tenants must have decided to renew its leases or prematurely terminate contracts. Both of these are issues PRIME should have announced.

In my opinion, PRIME's REIT manager should come clean and give a public announcement that the REIT has no material information (such as a tenant moving out/not renewing its contract/downsizing its leases). It is perplexing that the REIT has been sold down by 10% in just a single week. Hopefully, the REIT manager makes an announcement soon to clear the air.

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