Under terms of the lease, a US advanced clean energy and fuel design engineering company that is backed by a global ecommerce giant is taking up at least 11 years for a 120k sq ft space at Waterfront At Washingtonian.
With this, the occupancy rate of the asset is expected to rise to above 85%, marking an increase of some 35% increase since 1QFY2025.
"The improved occupancy rate, coupled with long-term cash flow visibility, should also lift WAW’s valuation. The deal follows comprehensive asset upgrades done last year, post-exit of the previous anchor tenant. It also highlights the continued flight-to-quality trend, which we believe will continue to benefit the REIT’s Class-A asset portfolio," says Natarajan.
"We expect another major lease signing by end-3Q25 and overall (FY25F) portfolio occupancy to be higher y-o-y, thereby boosting asset valuations. A key hurdle remains the volatile interest rate outlook, and a dovish tilt on this will be a key catalyst," says Natarajan.
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According to the analyst, Park Tower, another of the REIT's properties, is in advanced stages of a large anchor lease signing. A local government tenant is looking at consolidating its operations at the building.
The lease for around 24% of the asset’s space is likely to be signed by 3Q, taking asset occupancy to above 80%.
"This uplift in occupancy, however, will take time to translate into distributable income due to tenant incentives that are typically one month of free rental per year of lease signing. Hence, we expect distributable income to ramp up in FY26, after declining this year," says Natarajan.
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He notes that the REIT has no refinancing due until the middle of next year where it has around 10% of its debt due for renewal.
At the moment, about 66% of its debt is hedged, at 50% until 2026 and 16% until 2029.
"We expect gearing to slightly moderate to the mid-40% levels by the year-end (currently at 47%) on the back of anticipated valuation gains," says Natarajan.
His revised target price of 23 US cents is pegged at 0.4x P/BV, a higher valuation multiple from 0.3x P/BV previously, which the analyst justifies by noting that the demand for office space in the US indicates resilience despite tariff policies, with very-little-to-no new supply for the next few years.
Prime US REIT traded at 16 US cents as at 11.32 am, down 0.61%.
