Interestingly, Straits Time has released an article on the positivity of the US Office REIT space.
Similar to them, I had been positive for a while. This was mainly due to the successful refinancing of all 3 SGX US Office REIT of their debt. This removes one key re-financing risk. Of course, Manulife US (MUST) refinancing as part of the proposal, has to start selling US office buildings from a position of weakness amid vacating tenants in both Penn and Diablo Buildings.
Positive- Refinancing Done, 10% Dividend Resume 2026
Despite the high leverage of the US Office REITs (due to high cap rates used), refinancing of their debts were confirmed in 2024. My main investment, PRIME US, has refinanced albeit at a higher margin + SOFR.
With cashflow secured, my view is in 2025 both KORE and PRIME US will continue to use their rental cashflow to pay down debt. As what the REIT managers have guided, 2026 will be when dividends are restored. Personally, KORE and PRIME will declare 2.0-2.5 US cents in annual dividend. This will make them 10% dividend yielders.
Unitholders in current situation are likely to be sitting on a dividend windfall if the REIT managers execute to the plan.
It is possible for these REITs to sustain such high rates because their in-built cap rates are of a blended average of 6-7% for their office buildings; as opposed to Singapore office buildings which uses cap rate of 3.2%-3.8%. Due to the higher cap rate used by US Office buildings, the yield obtained by these REITs are higher and explains why they can become 10% dividend yielders in 2026.
A stronger balance sheet, resumption of payout and thus we should see 10% dividend for KORE and PRIME US unitholders if bought at current prices. KORE's leverage is below 45% and has the higher chance to resume payout in 2026. PRIME US is stil delevering and should still resume in 2026; though I truly hope there is no EFR on the pretext of delevering and buying an office building.
Next Positive- Growth of Occupancy Rate
US's work from home culture had resulted in occupancy rate for PRIME and MUST to fall to below 80% on a whole of portfoilo basis. For PRIME US REIT, I am confident occupancy rate will grow from 80% (3Q2024) to at least 85% (4Q2025).
This is mainly due to the return to office orders that is happening across USA now. Aided by the demolition of older and Grade B office buildings, a higher occupancy rate means higher revenue, this trickles to higher NPI and distributable income.
While others would tell me to bet on all horses, I have done my research and am betting on only 01 horse. In my view, it is likely the one who will benefit the most is PRIME with the youngest office portfolio. For now, I will hold on to my 470,000 shares in PRIME US REIT and be monitoring when "business as usual" dividend can be restored.
KORE is a close second for me to buy but at 22.5 cents, KORE expected yield is only 11%; if KORE is down to below 20 US Cents, I would be an investor. PRIME on the other hand is likely to be a 12-13% yielder at current price, hence why i feel PRIME is a better buy. However both KORE and PRIME US looks like very good purchases for 2025. While readers would point to them as REITs which are weak, it is possible when cap rates fall, their leverage ratio will be the same or lower than their Singapore peers and yet give high dividends. This will be when a re-rating occurs.
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