As reported, Prime US REIT's 1QFY2026 portfolio committed occupancy rose to 83.1%, up 0.4 percentage points q-o-q and 4.2 ppt y-o-y, thanks to higher rental reversion of 4% and with 99,000 sq ft of space leased, including 40,000 sq ft at Village Center Station I leased for 11 years to S&P Global.
In the quarter, net property income improved by 3.3% q-o-q to US17.2 million, while distributable income was up 12.1% q-o-q to US$6.5 million.
"With sequential improvement in overall performance, we remain attracted to Prime US REIT’s valuation at 0.3x P/B and a FYFY2026-2027 yield of 8.8% and 9.9% respectively, based on an assumed 65% payout ratio, which is reaffirmed by management," says Tan.
"We believe the key near-term catalyst remains the execution of the sizeable embedded leasing pipeline, with 463,000 sq ft of committed leases, equivalent to 11% of committed occupancy, which is expected to commence rental contribution progressively from 3QFY2026 onwards.
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Following which, the REIT will likely enjoy a gradual step-up in cash flow recovery into FY2027, adds Tan.
However, he warns that the REIT's balance sheet metrics remain the key investor overhang, with aggregate leverage at 45.2%, all-in borrowing cost at 5.4% and ICR at 1.6x.
"While leasing traction and positive rental reversions suggest that the REIT’s portfolio is stabilising, the pace of earnings recovery and refinancing execution will likely remain central to investor focus amid structurally softer US office demand and elevated interest rates," says Tan.
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Nonetheless, from his perspective, one of the strongest attributes of the REIT's initial portfolio is the fact that average rents for the leases are below market rents by around 8%.
"As Prime US REIT renews its leases over the next two years, there is potential for positive rental reversions which would help drive near-term earnings and distributable income," he adds.
Prime US REIT units closed at 16 US cents, down 2.4% for the day, extending a drop of 18.5% year to date.
