Investors have been worried about the business of Prime US REIT. Due to the oversupply of office space which has seen tenants vacating and the high gearing, the share price has taken a beating and is down 80% in a year.

Leverage of PRIME US Reit

While the latest published leverage ratio is 42.8%, I expect came year end when there is a revaluation, PRIME's leverage will exceed 45%. Here's why: Firstly, since the last valuation, the Fed has went on to raise rates 4 times (1%). This means risk free rate has increased and hence a cap rate expansion. This decreases PRIME REIT's property value. Secondly, with tenants leaving, I expect the REIT's valuation to fall as well. 

I expect the same magnitude in valuation decrease as that experienced by Manulife US REIT (15% decline). This means Prime REIT's leverage will hit 50.3%. There is no way in my