Prime US REIT 1H2025 Financial Results Analysis

Prime US REIT, a Singapore-listed real estate investment trust with a diversified portfolio of 13 Class A freehold U.S. office assets across 12 submarkets, has released its 1H2025 financial results. The report provides insights into the REIT’s operational performance, financial health, and outlook amidst a shifting U.S. office market landscape.

Key Financial Metrics and Performance Table

Historical Performance and Portfolio Trends

• Portfolio Occupancy: After dipping to 78.9% in March 2025, portfolio occupancy rose to 80.2% by June 2025, reflecting improved leasing momentum and successful signing of large leases. Occupancy reached a low in March 2025 but is on a path to stabilization.
• Leasing Volume: 2Q2025 saw 268,000 sq ft of leasing, doubling from 1Q2025 (132,000 sq ft). Major new leases included 61,000 sq ft to the U.S. Attorney Office in Salt Lake City and 120,000 sq ft to X-energy in Maryland.
• Distributable Income: Continued pressure from elevated interest rates and slow recovery from pre-pandemic remote work resulted in distributable income retention for capital reinvestment.
• Rental Reversion: Positive rent reversion of +4.3% in 2Q2025, up from +2.6% in 1Q2025, indicating improving rental market dynamics.

Financial Position and Capital Management

• Aggregate Leverage: 46.7%, with US\$95 million debt headroom and US\$64 million in undrawn committed facilities. No debt maturity in 2025, with weighted average interest rate at 5.4% and 66% of debt fixed/hedged.
• NAV per Unit: US\$0.55, with the unit price trading at a 71% discount to NAV, reflecting market skepticism but potential value for deep value investors.
• Dividend Payout: 1H2025 DPU was 0.12 US cents, up from 0.11 US cents in 2H2024, showing a modest recovery in distributions.

Sector and Geographic Diversification

• Top Tenants: No single tenant contributes more than 10.2% of portfolio cash rental income. Top industries are finance, communications, medical/biotech, legal, and government, enhancing income resilience.
• Geographic Spread: No single market contributes more than 12.4% of portfolio cash rental income. The largest asset is 222 Main, Salt Lake City, at 14.3% of carrying value.

Macroeconomic and Market Environment

• U.S. Economy: Real GDP grew 3.0% in 2Q2025. Unemployment stands at 4.2%, and inflation is under control (PCE at 2.6%). The Fed has held rates steady since December 2024, supporting some stability in real estate valuations.
• Office Market Dynamics: Return-to-office trends are accelerating, with 7 of the 10 largest Fortune 100 employers now requiring 4+ days in-office. Leasing demand is at its highest since 2021, and market supply is tightening as conversions and redevelopments outpace new deliveries. Investors are showing renewed interest in Class A office assets, evidenced by significant M&A and private equity activity.

Chairman’s Statement

The report does not contain a direct Chairman’s Statement. The management commentary emphasizes a focus on dividend payout, maintaining asset quality, driving occupancy, capital discipline, and leveraging leasing momentum to pursue stabilization and future growth. The overall tone is cautiously optimistic, with recognition of ongoing market challenges but confidence in the REIT’s balance sheet and leasing pipeline.

Recent and Potentially Impactful Events

• Large Leases Signed: Notably, a 61,000 sq ft lease with the U.S. Attorney Office and a 120,000 sq ft lease with X-energy materially improved occupancy in key assets.
• Occupancy Pipeline: 440,000 sq ft of new leases signed in FY2024 and 1H2025 (10.5% of portfolio occupancy) are set to commence rental income from 3Q2025 onwards, with further large leases at the LOI stage expected to sign in late 2025 and commence in 2026.
• Retention of Distributable Income: Higher interest rates and the need for asset reinvestment have led to substantial retention of distributable income, impacting immediate distributions but supporting long-term portfolio health.

Conclusion and Investment Outlook

Overall Assessment: The financial performance of Prime US REIT in 1H2025 appears resilient but not yet robust. Revenue and net property income are stabilizing with slight QoQ and YoY growth, while distributable income remains under pressure from elevated interest rates. Occupancy is moving towards stabilization, bolstered by strong leasing momentum and a healthy pipeline, though full recovery is not yet achieved. The REIT enjoys a sound capital structure with ample liquidity and no near-term debt maturities.

Recommendations

• If you are currently holding the stock: Consider maintaining your position. The REIT’s fundamentals are improving, and the deep discount to NAV suggests potential for upside as leasing gains translate into higher income and distributions. However, monitor for sustained improvement in distributable income and occupancy over the next two quarters.
• If you are not currently holding the stock: Investors seeking value may consider initiating a position, given the wide discount to NAV and positive leasing trends. That said, risk remains from elevated interest rates and a still-recovering office sector. A phased entry or small initial allocation may be prudent until further evidence of distributable income recovery emerges.

Disclaimer: This analysis is based solely on information provided in the 1H2025 financial report of Prime US REIT and does not constitute investment advice. Investors should conduct their own due diligence and consider their financial situation and risk tolerance before making any investment decisions.

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