Tailwinds Strengthen as Recovery Takes Hold

• Encouraging operating metrics with extended WALE of 4.9 years 
• Occupancy improvement to continue on the back of upcoming new leases to be signed across the portfolio 
• Ample liquidity to undertake building improvements tenant incentives 
• BUY call maintained, TP USD 0.35 

What has happened 

Encouraging operating metrics.  Prime US REIT reported 3Q25 operating metrics. We noted continued leasing momentum with portfolio committed occupancy improved to 80.7% (+ 0.2% ppt q/q), the highest in nearly two years. We note that the manager has secured , driven by c.450k sf of new leases pending activation in the coming quarters with close to an additional c.150k sf under advanced negotiation, across several key buildings. WALE extended to 4.9 years (2Q25: 4.7 years) and rental reversion strengthened to +14.5% (2Q25: +4.3%). 

Our view. 

Distributions normalised, balance sheet shored up.  With improving visibility of the trajectory in cash inflows on top of the recent liquidity injection from fund raising recently:  DBS Research Insights Direct - Prime US REIT, PRIME reinstated its distributable income payout to at least 50% from 2H25 (previously 10%). Pro forma gearing eased to 44.9% which the manager expects further easing as property values firming up as overall improvements in cashflows aids in valuers taking a more constructive view on asset prices. Financial metrics while appear at tight with ICR at 1.6x, and fixed-rate debt coverage at 66% (50% until 2026), should improve on the back of lease commencement. Maintain BUY, TP USD 0.35 with the stock trading at a 62% discount to NAV (USD0.52) offering good value. implying potential for re-rating once distributions stabilise.

A distribution of only 10% of the distributable income has been declared for the last two one-year periods since Jul 1, 2023, the manager notes

 

[SINGAPORE] The manager of   Prime US Reit   : OXMU 0% on Tuesday (Nov 11) posted a distributable income of US$6.3 million in Q3, down 25.9 per cent from US$8.5 million in the previous corresponding period. 

 

This comes amid a change to its distributable income payout policy, as the real estate investment trust (Reit) raises its distributable income payout ratio to at least 50 per cent from H2 2025 onwards, from 10 per cent previously. 

 

The manager noted that a distribution of only 10 per cent of the distributable income was declared for the last two one-year periods since Jul 1, 2023. This was due to portfolio reinvestments being prioritised to activate newly signed leases and to protect long-term value. 

 

&ldquo With the commencement of some of these leases and the high degree of visibility on future contractual cash flows, the manager believes it is reasonable to begin normalising Prime&rsquo s distribution policy,&rdquo the managed said in the Reit&rsquo s third-quarter business update. 

 

The Reit&rsquo s property cash income is expected to grow further as the rent payment of a majority of the newly signed leases commence throughout 2026, the manager said.

 

As cash flows from new leases ramp up, increasing the distributable income payout ratio from 10 per cent to 50 per cent, while retaining 50 per cent of the current distributable income, can help ensure coverage for ongoing capital and operational needs, it added.  

 

Revenue for the quarter fell 2.7 per cent to US$33 million, from US$33.9 million in Q3 2024.

 

For the three months, net property income slid 6.1 per cent to US$16.8 million from US$17.9 million.

 

The Reit&rsquo s net asset value per unit stood at US$0.52, with its aggregate leverage at 44.9 per cent. 

 

Prime US Reit H1 DPU falls by 33.3% to US$0.0012 due to higher finance expenses, asset divestment

On a quarter on quarter basis, portfolio occupancy stood at 80.7 per cent as at Sep 30, 2025, up from 80.2 per cent as at June. 

 

Rental reversion came in at positive 14.5 per cent, versus positive 4.3 per cent for Q2 2025. 

 

The manager noted that the Reit has engaged in multiple leasing negotiations across several of its assets as return-to-office momentum in the US gains traction and demand for office space strengthens.

 

Notably, the Reit secured around 92,000 square feet (sq ft) of leases in Q3 2025, compared with a leasing volume of 268,000 sq ft for Q2 2025.

 

The Reit also extended its portfolio&rsquo s weighted average lease expiry to 4.9 years from 4.7 years in the prior quarter. 

 

The optimism is based on how the US office market is showing clearer signs of stabilisation, with leasing demand and occupancy metrics improving across major markets.

 

&ldquo We view Prime as a value proxy to the US office sector, which is showing early signs of recovery in recent quarters,&rdquo state Tan and Lai in their Nov 3 note. &ldquo We believe Prime US REIT has moved past its worst times.&rdquo

 

According to Cushman & Wakefield and JLL, tenant activity strengthened in 3Q, with leasing volume up 6.5% q-o-q to 52.4 million sq ft, which is close to post-pandemic highs, with 18 of the 53 tracked markets having surpassed pre-pandemic leasing levels.

 

They project Prime US REIT&rsquo s occupancy rate to hit 90% by the end of FY2025/1QFY2026, supported by signed new long term leases across key assets, bringing its weighted average lease expiry (WALE) to 4.7 years.

 

The recent equity fund raising (EFR) of US$25 million, while 10% dilutive to its NAV, provides Prime US REIT with essential capital to undertake ongoing and future capex plans, support offering tenant incentives, strengthen liquidity and provide higher payouts.

 

The REIT has raised its payout ratio from 10% previously to 50%, implying forward FY2026-FY2027 yields of 6.2%-7.4%. In the manager&rsquo s opinion, the payout ratio could be raised if operational performance continues to strengthen.

 

All in, both analysts view Prime US REIT as a value proxy to the US office sector, which is showing early signs of recovery in recent quarters. Prime US REIT&rsquo s ability to ride on the thawing office market fundamentals to drive higher occupancies and cashflows puts it on a stronger footing to start meaningful distributions, ahead of their listed US office S-REIT peers.

From darkness to dawn

• Improving operational metrics mark a clear inflection point longer WALE of 4.7 years and higher occupancies signal stronger financial resilience
• Sufficient liquidity with recent EFR, plus available cash/debt capacity supports ongoing funding needs
• Higher payout a key catalyst, assumed 50% payout implies FY26-27F yields of 6.2%-7.4% 
• Reinitiate with BUY, TP USD 0.35

Investment Thesis: 

Strengthening operational performance signals a turnaround.  With improving macro conditions and better office fundamentals, we believe Prime US REIT has moved past its worst times. Occupancy rates are projected to hit c. 90% (from c.80% as of 1HFY25) by the end FY25/1QFY26, supported by signed long term commitments across key assets, bringing its weighted average lease expiry (WALE) to 4.7 years, offering improved income visibility. The improved WALE, coupled with lease commencements from 2H25 onwards, is projected to lift net property income (NPI) by c.20% in the coming years, returning close to c.90% of pre-COVID levels on a like-for-like basis. With the FED widely expected on a rate-cut trajectory, we see possible interest cost savings providing further distribution upside over the medium term, which we have yet priced in.   

Infusion of capital supports higher payout  from 2H25 onwards.  Prime US REIT&rsquo s recent equity fund raising (EFR) of USD 25mn, while c.10% dilutive to NAV, expands its liquidity to USD 120mn, providing with sufficient capital to undertake ongoing capex, support tenant incentives, strengthen liquidity and provide for higher payouts to unitholders. With improved liquidity, this allows the manager to kickstart a higher payout ratio of 50% (vs 10% previously), implying forward FY26-27F yields of 6.2%-7.4%.

Turning the corner. We reinitiate coverage on Prime US REIT with a BUY rating and DCF-backed TP of USD 0.35. Our target price implies a target yield of 4.3% (based on a 50% payout ratio) and a P/B of 0.65x. Every 10% rise in payout should drive yields up by 1%.   We view Prime as a value proxy to the US office sector, which is showing early signs of recovery in recent quarters.

Key Risks

Economic outlook: A recession could pressure operating metrics.