• 3Q25/9M25 distributable income declined 26%/28% YoY, in line with expectations at 21%/76% of our FY25e forecast. The weaker 3Q25 performance reflected a lower portfolio occupancy of 80.7% (3Q24: 83%) and higher finance costs following the Aug-24 loan refinancing.
• 92k sqft (2% of NLA) of leases were signed in 3Q25 at a strong +14.5% rental reversion (2Q25: +4.3%). Portfolio occupancy inched up from 80.2% to 80.7% QoQ, and is expected to reach c.85% by year-end with the signing of large leases totalling over 150k sqft (c.3.5% of NLA).
• Maintain BUY with an unchanged DDM-derived TP of US$0.30 and no changes to our forecasts. The payout ratio will be raised to at least 50% of distributable income from 2H25 onwards (10% payout ratio since 2H23), supported by improving committed occupancy and strong income visibility, as 10.8% of portfolio occupancy is staggered to start contributing cash flows from 4Q25 onwards. Assuming a 50% payout ratio in 2H25 and FY26e, the current share price implies FY25e/26e DPU yields of 3.1%/6.7%. Prime trades at a steep discount at 0.37x P/NAV, offering an attractive entry point with dividend growth as the portfolio stabilises.

• Prime US REIT will raise US$25mn via a private placement, issuing 129mn new units (9.9% of current units) at US$0.1935 per unit (c.10% discount to 24 Sep 2025 VWAP). The proceeds will be used to fund capital expenditure, tenant incentives, leasing costs to attract/retain tenants, and meet existing tenant obligations.
• The payout ratio will be raised to at least 50% from 2H25 onwards (10% in 1H25), while retaining the balance of distributable income to cover ongoing capital and operational needs. With 10.5% of occupancy staggered to commence its cash contribution from 3Q25, management sees sufficient cash flow visibility to sustain the higher payout ratio going forward.
• Maintain BUY with a higher DDM-derived TP of US$0.30 (prev. US$0.21). We raise our FY25e DPU from 0.26 cents to 0.62 cents (2H25: 50 cents) on a higher 50% payout ratio (1H25: 10%) in 2H25. Our cost of equity is lowered to 10.5% (prev. 14.9%) amid signs of recovery in the US office market and cash flow visibility from new leases signed in FY24/1H25 (10.5% of occupancy yet to commence cash contributions). Prime is also in advanced negotiations to secure over 150k sqft (3.5% of NLA) of space, with portfolio occupancy expected to recover to 85% by end-2025 (1H25:80.2%). Additionally, we anticipate a slight portfolio valuation uplift at year-end, driven by the signing of new leases. The current share price implies an FY25e/26e DPU yield of 3.1%/6.65%, while trading at a steep discount at 0.37x P/NAV.

• 1H25 DI/DPU were within expectations at 49%/46% of our FY25e forecast. 1H25 DI fell 29% YoY due to a 39% surge in interest cost from the Aug-24 loan refinancing, the divestment of One Town Center in July-24, and lower portfolio occupancy of 80.2% (1H24: 83.9%).
• Portfolio occupancy rose from 78.9% in 1Q25 to 80.2%, aided by stronger leasing momentum, including a 120k sqft (2.9% of NLA) 11-year lease signed at Waterfront at Washingtonian in June 25. 2Q25 rental reversions improved to +4.3% (FY24: +1.8%; 1Q25: +2.6%), supported by flight-to-quality and return-to-office trends. Occupancy should rise in 2H25, supported by a 61k sqft (1.5% of NLA) lease signed at 222 Main in July 25. Prime has no refinancing requirements in FY25.
• Maintain BUY with a higher DDM-derived TP of US$0.21 (prev. US$0.20). Our forecast remains unchanged, but we lower our cost of equity assumptions to 14.9% (prev. 15.95%) amid signs of recovery in the US office market. We assume a 10% payout ratio in FY25e, rising to 50% in FY26e, as new leases signed in FY24/1H25 (10.5% of occupancy) are staggered to start contributing cash rentals after rent-free periods from 3Q25 onwards. The current share price implies an FY25e/26e DPU yield of 1.5%/8.25%. Prime is currently trading at a steep discount at 0.31x P/NAV.

• 1Q25 NPI/DI were within expectations at 23%/25% of our FY25e forecast. DI declined 30% YoY due to lower portfolio occupancy (1Q25: 78.9% vs 1Q24: 80.9%), the divestment of One Town Center in July 24, and higher finance expenses.
• Leases signed in 1Q25 achieved a positive rental reversion of 2.6% (FY24: +1.8%). Two large leases (>100k sqft each) are expected to be signed in FY25, with cash rental collection commencing in FY26. These leases are expected to lift portfolio occupancy towards c.85% by end-2025. Prime has no refinancing requirements in FY25.
• Maintain BUY with an unchanged DDM-derived TP of US$0.20. Our estimates remain unchanged. We assume the 10% payout ratio continues through FY25e and a return to 100% distributions in FY26e, as new leases signed in FY24/1Q25 (6.4% of occupancy) begin contributing cash rentals after the rent-free periods. The current share price implies an FY25e/26e DPU yield of 1.8%/20.4%. Prime is currently trading at a steep discount at 0.25x P/NAV.

• 2H24/FY24 DPU of 0.11/0.29UScts (-52%/-88% YoY) were below expectations at 33%/88% of our FY24e forecast. The YoY decline was due to: 1) the manager retaining c.90% of DI for capital expenditure, 2) the divestment of One Town Center in July 24, 3) Waterfront at Washingtonian’s asset enhancement initiative (AEI), and 4) higher finance expenses. 2H24/FY24 DI was 36%/93% of our FY24e forecast.
• Portfolio valuations rose 2.2% YoY to US$1.352bn, driven by stronger operating performance and positive leasing momentum, despite a slight increase in cap and discount rates. FY24 leasing volume grew 1.9% YoY, with leases signed at a 1.8% positive rental reversion.
• We maintain BUY with an unchanged TP of US$0.20. We lower our FY25e/26e DPU estimates by 21%/20% to reflect a lower NPI margin, aligning with FY24 levels as we roll forward our forecasts. Assuming the 10% payout ratio continues through FY25e and Prime resumes full distributions in FY26e, the current share price implies an FY25e/26e DPU yield of 1.7%/19.5%. We expect a return to 100% distribution in FY26e, supported by higher portfolio occupancy, lower capex and tenant incentive requirements, and cash contributions from leases signed in FY24/FY25 as rent-free periods and incentives phase out. With more employers mandating return-to-office five days a week, Prime is well-positioned to benefit from this trend and the improving leasing momentum. Prime is currently trading at a steep discount at 0.26x P/NAV.

• 3Q24/9M24 distributable income, down 42.2%/27.6% YoY, was in line with our expectations and formed 21%/77% of our FY24e estimates. 3Q24 distributable income fell 42.2% YoY due to: 1) portfolio occupancy decline, 2) divestment of One Town Centre, 3) AEI works at Waterfront at Washingtonian, and 4) higher finance expenses from RCF drawdowns to fund CAPEX, along with higher interest costs.
• Leasing volume spiked 116% QoQ in 3Q24, with a gross rental reversion of +6.5% for the quarter. Excluding Waterfront at Washingtonian, which completed its AEI in October 2024 and is currently 40.2% leased, portfolio occupancy fell by 0.9ppts QoQ to 83%.
• We maintain BUY with a lower TP of US$0.20 from US$0.22. Our estimates remain unchanged, but we now assume the 10% payout ratio will persist through to FY25e (prev. 100% in FY25e). Based on our assumption of a 10% payout ratio in FY24e, the current share price implies an FY24e DPU yield of 2.1%, which is still considered favourable compared to its peers, which are not paying any dividends. With further interest rate cuts expected and improving leasing momentum, we think there is potential for share price appreciation as Prime is currently trading at a steep discount at 0.27x P/NAV.

• 1H24 results were within expectations. Gross revenue/distributable income was 47%/45% of our FY24e forecast. DPU of 0.18 US cents missed our estimates as Prime paid out only c.10% of DI in 1H24, compared to our initial assumption of 25%.
• Completed the major refinancing exercise on 9 August 2024 with a US$550mn credit facility. This new facility has an initial maturity in July 2026, with an option to extend for an additional year. The facility will be used to repay S$504.3mn of loans, with the balance for working capital and capital expenditure.
• We upgrade from ACCUMULATE to BUY with a higher TP of US$0.22 from US$0.12. We revert our valuation methodology back to DDM (cost of equity: 15.95%, g: 1.75%) from 0.2x P/NAV after the successful securing of a new secured loan facility. We lower our FY24e DPU forecast by 68% after accounting for the divestment of One Town Center and a lower payout ratio of 10% (previously assumed 25% payout ratio). Based on our assumption of a 10% payout ratio in FY24e, the current share price implies an FY24e DPU yield of 1.8%, which is still considered favourable compared to its peers, which are not paying any dividends. We think there is potential for capital appreciation as Prime is currently trading at a steep discount at 0.32x P/NAV.  

• 1Q24 results were within expectations. Gross revenue/distributable income was 23%/22% of our FY24e forecast. DI was 19.5% lower YoY due to lower portfolio occupancy (1Q24: 80.9%) and higher finance expenses.
• Management is confident that it will refinance the US$480mn (69% of total) debt before its July 2024 maturity as: 1) Prime is in the final stages of securing the loan, 2) the lenders are a syndicate led by Bank of Amerca. US banks are relatively more comfortable with financing US commercial real estate on a 65% LTV and an ICR of 1.5x, and 3) Prime’s assets are still generating income and cash-flows. However, credit spreads and interest cost may widen.
• Downgrade from BUY to ACCUMULATE with a lower TP of US$0.12 from US$0.30. We peg our TP to 0.2x P/NAV (from DDM), in line with its peers. We are pricing in the refinancing risk by changing our valuation from DDM to P/NAV that is in-line with US office peers. We believe this is warranted due to the short two-month window to refinance the debt. Prime is now focusing on deleveraging and has set a target to execute US$100mn of deleveraging in 2024. A successful refinancing of the US$480mn loan maturing in July 2024 we believe will help narrow the discount to NAV to 0.3x P/NAV and a target price of US$0.18. Based on our assumption of a 25% payout ratio in FY24e, the current share price implies an FY24e DPU yield of 9.5%. Prime is currently trading at 0.19x P/NAV.

The Positive

+ Leasing volume more than doubled YoY. Over 171.3k sq ft of leases were signed in 1Q24 (1Q23: 64.4k sq ft; 4Q23: 304.1k sq ft). Rental reversion for 1Q24 was -1.8% due to a 31.8k sq ft 11-year lease renewal in Reston Square with rents below preceding rents but above market rents. Management indicated strong leasing momentum at some of its properties, with notable leasing discussions underway at One Washingtonian Center (OWC), Park Tower, and 101 Hanley, albeit with relatively longer lead times.

The Negatives

- Two months left to refinance US$480mn or 69% of total debt due July 2024. Management is actively discussing refinancing this loan with lenders and believes it will be completed before maturity. 79% of total debt are either on fixed rate or hedged, with US$330mn of the US$480mn debt due for refinancing in July 2024 already hedged till June 2026. The cost of debt rose 0.1%pts QoQ to 4.1%. Aggregate leverage stood at 48.1%, with an ICR of 2.9x.

- 1Q24 Portfolio occupancy fell to 80.9% (FY23: 85.4%) after Sodexo vacated OWC. OWC is now undergoing an asset enhancement initiative to rejuvenate the asset, which is expected to be completed in 2H24. Excluding OWC, occupancy was 84.7%.

• FY23 DPU of 2.71 US cts (-58.6% YoY) was below our estimates due to Prime paying only 0.25 US cts in 2H23 (c.10% of 2H23 distribution) to preserve capital for capex needs. Assuming a 100% payout ratio, FY23 DPU of 4.86 US cts would have aligned with our FY23e forecast at 99%. Prime also announced a 1-for-10 bonus issue (c.43% of 2H23 DI), translating to a value of 1.03 US cts, based on a unit price of US$0.103.
• The YoY decline in FY23 distributable income (-25%) was due to Prime increasing management fees paid in cash from 20% to 100%, higher interest expense, and lower portfolio occupancy. Excluding the change in management fees paid in cash, distributable income is down 18.9% YoY. Portfolio valuations fell 8.7%, taking gearing to 48.4%, just under the MAS limit of 50%.
• Maintain BUY, DDM-TP lowered from US$0.37 to US$0.30 as we roll over our forecasts. FY24e DPU estimate lowered by 77% after factoring in the enlarged share base from the bonus issue, a lower portfolio occupancy, and a payout ratio of 25%. The key risk entails refinancing US$478mn (68% of total) debt under its main credit facility expiring in July 24, though management has expressed confidence in their ability to do so. Prime is now focusing on deleveraging and has set a target to execute US$100mn of deleveraging in 2024. Assuming a 25% payout ratio in FY24e, the current share price implies an FY24e DPU yield of 8%. Prime is currently trading at 0.22x P/NAV.

The Positive

+ Leasing activities picked up in 4Q23. Prime signed 304.1k sq ft of leases in 4Q23, more than the previous three quarters combined (9M23: 276.8k sq ft), at 9.6% positive rental reversion. Portfolio occupancy improved 0.4% QoQ to 85.4%, but it will dip in 2024 due to Sodexo (5.4% of income) vacating c.166k sq ft of space (c.3.8% of portfolio occupancy) at One Washingtonian Center (OWC). Management indicated strong leasing momentum at some of its properties, with notable leasing discussions underway at OWC and Park Tower, albeit with relatively longer lead times.

The Negatives

- Portfolio valuation fell US$134.3mn or 8.7% YoY, due to an average 54bps expansion in cap rates across the portfolio. The decline in valuation was lower than we anticipated. As a result, there was no breach in financial covenants as gearing increased to 48.4%, just under MAS limit of 50% if ICR is above 2.5x; Prime’s ICR is 3.1x. Prime is now working on deleveraging alternatives and is targeting up to US$100mn of deleveraging in 2024 to pare down gearing.

- Yet to refinance US$600mn in credit facilities (US$478 outstanding) due July 24. Management indicated they are actively discussing refinancing this loan with lenders, which constitutes 68% of Prime’s total debt. The cost of debt for the quarter was flat QoQ at 4%, with 79% of debt either on fixed rate or hedged, with 62% of debt hedged or fixed through to 2026 or beyond.

Outlook

Prime has not committed to future distributions going forward and will evaluate the situation dynamically, depending on capital requirements. Management continues to prioritize net effective rents with lower capex deals over headline rents in a challenging US office environment. In-place rents are c.6.5% below asking rents, and the potential for favourable rental reversions going forward remains promising. Prime US Reit has no exposure to WeWork, which filed for Chapter 11 bankruptcy.

Maintain BUY, DDM TP lowered from US$0.37 to US$0.30. FY24e DPU estimate lowered by 77% after factoring in the enlarged share base from the bonus issue, a lower portfolio occupancy, and a payout ratio of 25%. Assuming a 25% payout ratio, the current share price implies an FY24e DPU yield of 8%.

• 3Q23 distributable income of US$14.7mn (-23.4% YoY) was in line with our expectations and formed 25% of our FY23e forecast. The YoY decline was due to Prime increasing management fees paid in cash from 20% to 100%, higher interest expense, lower portfolio occupancy, and absence of lease termination income (US$1.3mn recorded in 3Q22). Excluding the change in management fees paid in cash, distributable income is down 16.6% YoY.
• Portfolio occupancy dropped to 85% from 85.6% in 2Q23, with overall rental reversions of -2%. Prime is prioritising net effective rents (deals with lower capex) over headline rents in this challenging US office environment in a bid to shore up occupancy.
• Maintain BUY, DDM-TP lowered from US$0.39 to US$0.37. FY24e DPU lowered by 7% on lower occupancy and higher finance costs assumptions. Prime is currently trading at 0.21x P/NAV. We believe that most of the negatives are already priced in. The key risk will be on the year-end valuation impact to gearing (43.7%) and bank covenants. There is a refinancing of US$484mn (69% of total) debt under its main credit facility which expires in July 24. The current share price implies FY23e/FY24e DPU yield of 30%.

The Positive

+ Leasing activities picked up in 3Q23. Prime signed 145.6k sq ft of leases in 3Q23, more than the previous two quarters combined (1H23: 131.2k sq ft). This was mainly due to the lease extension of top tenant Charter Communications for 94k sq ft at Village Center Station I (VCS I). Management indicated strong leasing momentum at some of its properties, with notable leasing discussions underway at VCS I and Park Tower, albeit with relatively longer lead times. One of its top 10 tenants, Matheson Tri-Gas, has indicated interest to expand its space at Tower 909, and discussions are ongoing.

The Negatives

- Portfolio occupancy dipped from 85.6% to 85% QoQ. We expect further decline in occupancy going forward as Sodexo, Prime’s second largest tenant (5.3% of income), vacates One Washingtonian Center (OWC). It will vacate 166k sq ft of 191k sq ft leased by Dec 2023 - the balance space is currently sublet to other tenants who will likely remain. Prime is making use of this downtime to re-amenitize OWC, with enhancement initiatives costing c.US$5mn underway to modernize the asset to improve leasing interests. Backfilling at this asset is in progress, with encouraging signs as it has already secured a 19k sq ft 11-year lease with a healthcare tenant in Oct 23.

- Gearing increased 0.9ppts QoQ to 43.7%, leaving a c.12.9% buffer from FY22 year-end valuations before it reaches 50%. 78% of debt is either on fixed rate or hedged (2Q23: 80%), with 62% of debt hedged or fixed through to 2026 or beyond. The remaining 16% of hedges expire in July 24. Prime’s YTD all in interest cost rose to 4% from 3.9% in 1H23, and its interest coverage ratio is at 3.2x. Prime is in talks with lenders to refinance US$484mn (69% of total) debt that expires in July 24.