US Office REITs Recovery Play And Disappointing Projected Distribution Yield Even If Full Payout Resumes.

Prime US REIT just released its first half results ending 30 June 2025. The results are a mixed bag of good news as well as some slight disappointment. Good news is that green shoots are indeed confirmed with the US office market making a painful but gradual slow recovery from both more favourable demand and supply side. The disappointing news is that distribution is still at only a fraction of the historical distribution. As for Keppel Pacific Oak REIT ("KORE"), its earlier announcement is also not too bad with occupancy maintained at the high end of 85%. I will run a financial projection later on for sharing also on the expect distribution using Prime US REIT to see the 2026 normalised distribution yield.

1. Current US Office Commercial Sector Updates

On the supply front, office ground breakings hit all-time lows, and the construction pipeline contracted to near historic levels, at a fraction of pre-pandemic levels. At the same time, inventory removals for conversions and demolitions outpaced new deliveries, resulting in a net decline of 700,000 square feet nationally in Q2. Scarcity of new, high-end supply is driving aggressive rent growth in the trophy segment and is expected to spur increased spillover demand in well-located, renovated assets as the pipeline dries up

Extract of Prime US REIT Occupancy

2. Financial Projection of Distribution Yield in FY2026 Normalisation.

The numbers are looking really bad with cash balances still dwindling. Free cashflow also still in huge negative after paying for CAPEX and financing expenses. Please see below.

Basically, unless Prime US REIT goes back to its previous free wheeling practice of paying CAPEX with more borrowings, there is nothing much left for payback to unit-holders. Some good news here is that Prime US REIT managed to sign on new 120,000 sqft leases at Waterfront At Washingtonian in June 2025 as well as 43,000 sqft of new leases at its Village Centre property in the same month. But the resultant upsides in cashflow from these new leases using US national average of US$32.87 per sqft annually for proxy reference, will mean only an additional net positive cashflow of US$5.36Mil.

If we divide it by 1,308,259,000 units, then the sustainable distribution per unit will be US$0.0041 per unit. Based on market price of U$0.175 per unit as at 13 August 2025, the annualised yield will thus be 2.34% in FY2026 assuming 100% pay-out ratio is reinstated. (Let me know if there is anything incorrect in my maths or assumptions).

Parting Thoughts
Retails investors need to take note that even if the management of Prime US REIT decided to reinstate the distributions, the payout will now need to factor in CAPEX requirement to cover for activating new leases. Unless operating rental income goes up further along with further cut in CAPEX and financing cost, there is not much left in terms of free cashflow for distribution to investors.