Specifically, the REIT is in "advanced negotiations" with a California State government agency for 121,000sf at Park Tower in Sacramento, equivalent to 25% of NLA, which could bring occupancy back to 85%, up from the most recently reported 68% in 2QFY2025.
"The prospective tenant has signed a letter of intent and is in the process of reviewing the first draft of the lease agreement," says Koh.
Also, there are various leasing discussions underway at Village Center Station 1 (VCS1) in Denver. After signing a 43,000sf lease with a global engineering company in 2QFY2025, the REIT continues to engage a financial services company for 39,000sf at VCS1, which could improve occupancy at this property from 68% to 84%.
Over at 171 17th Street in Atlanta, the REIT is talking to two prospective tenants. It is in advanced negotiations with a professional services company for 23,000 sq ft, or one floor, which could improve occupancy at this property from 66% to 70%.
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According to Koh, the REIT's manager had previously guided portfolio occupancy to recover to 83-85% by the end of the year.
"With the recent pick-up in leasing activities, management has become more confident that Prime US REIT could achieve the higher end of the guided range at 85% by end-25," he says.
Meanwhile, in 1HFY2025, leasing activities surged with 400,000 sq ft of leases signed, up 24% h-o-h, and with positive rental reversion of 3.4% and annual rent escalation of 2-3%. Koh says there will be more new leases this coming year.
In the most recent 2QFY2025, portfolio occupancy improved 1.3ppt q-o-q to 80.2; portfolio WALE was extended by 0.4 years in 2024 and 0.3 years in 1H25 to 4.7 years as of June.
For 1HFY2025, Prime US REIT kept its payout ratio at a mere 10% of its distributable income so as to keep the funds for refurbishment instead.
According to Koh, the REIT's management plans to convene a board meeting in November to deliberate on its payout ratio strategy.
He figures a phased approach with gradual step-ups in the payout ratio from 50% in 2026, thereafter increasing by 15ppt to 65% in 2027 and 80% in 2028.
The REIT had on Aug 9 secured a new credit facility of up to US$550 million, comprising a US$400 million term loan facility and a US$150 million committed revolving credit facility.
Koh estimates the REIT now has a weighted average debt maturity of 2.3 years, with aggregate leverage stable at 46.7% as of June and no requirement for refinancing over the next two years till next July.
He expects the cost of debt to trend lower to 5.2% in 2HFY2026 from 5.4% in 2QFY205.
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By applying assumptions of a payout ratio of 50% in 2026, 65% in 2027 and 80% in 2028, Prime US REIT will generate attractive yields of 9.6% for 2026 and 12.7% for 2027.
"We like Prime US REIT for its positive leasing momentum and conviction on improvement in portfolio occupancy," says Koh.
Prime US REIT traded at 21 US cents as at 3.55 pm, up 3.02% thus far today and up 20.59% year to date.
