[*Update after Prime US REIT confirmed the IPO]

On 28 June 2019, KBS Asia Partners Pte Ltd (KAP) filed in the IPO Prospectus of Prime US REIT IPO – marking the fifth U.S.-based REIT to list in Singapore to date. [Update: it has now filed its IPO Prospectus on 8th July. You can download Prime US REIT IPO prospectus here. ]

Its units are offered at US$ 0.88 each with its distribution yield forecasted to be 7.4% in 2019 and 7.6% in 2020. The timing of the offering has not been finalised [Update below].

Sourced from PRIME US REIT IPO Prospectus

With that said, we will highlight 7 key things you need to know about Prime US REIT. 

#1: Portfolio 

Prime US REIT has 11 Freehold Class-A office properties located in cities all over the United States. In total, they have net lettable area (NLA) of 3.4 million sq. ft. and more than 10,000 parking stalls.

In 2018, Prime US REIT’s portfolio is worth US$ 1.23 billion and they are as follows:

#2: Financial Results 

For the last 3 years, Prime US REIT has achieved higher revenues, up from US$ 107.6 million in 2016 to US$ 118.5 million in 2018.

It is attributed to growth in revenues from Village Centre Station 1 & 2, 101 South Hanley, CrossPoint, One Washington Centre, and 171 17th Street during the 3-year period.

As such, the REIT has recorded higher net property income and profits after tax for the past 3 years as recorded below.

Figures in US$ ‘000

#3: Balance Sheet Strength 

As at the listing date, Prime US REIT would have total borrowings of US$ 452.2 million, thus, having an aggregate leverage of 37.0%.

Its average debt tenure is approximately 5.6 years and 85.1% of its total borrowings would be hedged or be based on fixed interest rates.

All of its borrowings are denominated in U.S. Dollars and thus, matches with the currency of cash flows received by the REIT. 

#4: IPO Proceeds 

Prime US REIT intends to raise a gross proceeds of US$ 813.0 million from the issuance of its IPO units, KBS units, and Cornerstone units. 

Upon listing, KBS REIT Properties III and its cornerstone investors would emerge as substantial shareholders of Prime US REIT.

One important thing to note is that both their ownership will add up to  63.7% of the total units in issue after the IPO; see below image for reference:  

Source: Page 85 & 87 of Prime US REIT’s IPO Prospectus

#5: Lease Profile

As of 1 January 2019, Prime US REIT recorded a 96.7% in occupancy rates for its portfolio. It is occupied by 187 tenants with long-tenured leases that are mostly signed for a term of 5 – 10 years.

Its weighted average lease of expiry (WALE) as of 1 January 2019 is 6.7 years and its 10 largest tenants contributed 43.5% of its total cash rental income for January 2019. These tenants are as follows: 

No.	Tenants	WALE (Years)	% of Cash Rental
1	Charter Communications	8.9	7.9
2	Goldman Sachs	6.4	6.0
3	Sodexo Operations	5.0	5.9
4	Wells Fargo Bank	6.2	5.0
5	Holland & Hart	7.4	4.7
6	Arnall Golden Gregory	5.8	3.9
7	Whitney, Bradley, & Brown	3.6	3.1
8	Apache Corporation	5.6	2.6
9	Teleflex	5.8	2.5
10	Rovi Corporation	6.8	2.0

 

Source: Page 19 of Prime US REIT’s IPO Prospectus

#6: Valuation 

Its net asset value per unit is US$ 0.84. Thus, based on its offering unit price of US$ 0.88, its P/B Ratio is 1.05.

From 1 April 2019 to 31 December 2019, it plans to distribute 4.87 U.S. cents to its unitholders. It works out to be an annualised 7.4% in distribution yield in 2019. 

#7: Comparison with other U.S.-based SGX-REITs

Prior to Prime US REIT, the SGX has listed four U.S.-based SGX-REIT and they are as follows:

No.	REITs	Type	Date of Listing	Current Unit Price (2 July 2019)
1	Manulife US REIT	Office	18 May 2016	US$ 0.88
2	Keppel-KBS US REIT	Office	7 Nov 2017	US$ 0.77
3	ARA US Hospitality Trust	Hospitality	7 May 2019	US$ 0.89
4	Eagle Hospitality Trust	Hospitality	22 May 2019	US$ 0.70

 

Based on their current unit price, the current valuation figures for all five REITs, inclusive of Prime US REIT, are as follows: 

REITs	Prime  US REIT	Manulife  US REIT	Keppel-KBS US REIT	ARA US Hospitality Trust	Eagle Hospitality Trust
P/B Ratio	1.05	1.10	0.99	1.03	0.80
Distribution Yield (%)	7.4%	6.9%	6.2%	7.9%	9.2%

In a glance, the valuation of Prime US REIT’s IPO unit offerings would be better compared with Manulife US REIT and Keppel-KBS US REIT as they are of similar class of REITs – U.S. Office REITs.

Presently, it is offering the highest distribution yield than its peers and is second when it comes to P/B Ratio.  But, before investing, I reckon that you study through all of the three U.S. REITs in greater detail. 

Conclusion: 

Prime US REIT’s properties has delivered stable results for the past 3 years. The only exception is Tower 1 at Emeryville, which suffered from a fall in occupancy rates to 50.7% and 62.9% in 2017 and 2018.

The good news is – it has improved its occupancy rate to 81.1% in 2019. The rest of its properties are also enjoying well above 95% in occupancy rates, thus, provide income visibility to its unitholders. What’s more, you are getting a nice 7.4% distribution yield from the onset.

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