You are here

Prime US Reit is listing now because 'conditions have stabilised'

Prime US REIT.jpg
The Manager of Prime US Reit is choosing to list the Reit now, after a long delay from earlier attempts last year, because market conditions have somewhat stabilised, said Barbara Cambon, chief executive officer and chief investment officer of the manager.

Singapore

THE MANAGER of Prime US Reit is choosing to list the Reit now, after a long delay from earlier attempts last year, because market conditions have somewhat stabilised, said Barbara Cambon, chief executive officer and chief investment officer of the manager.

The third US office Reit to list here if successful - following in the footsteps of predecessors Manulife US Reit and Keppel-KBS US Reit - Prime US Reit has been priced unchanged from its initial guidance at US$0.88 per unit, representing a distribution yield of 7.4 per cent in 2019, and 7.6 per cent in 2020.

"The interest rate market has changed a lot, the tax concerns which were an overhang last fall have really been resolved, and I think in general the trade headwinds aren't quite as bad as they were before," she said.

sentifi.com

Market voices on:

On the reduced offering size from US$705 million to US$612 million, Ms Cambon said: "In looking at all the lessons learnt as we have gone through this process, we also learned we need to right-size our offering for this market... I think all the lessons that we've learnt from watching our predecessors have been very instructive to us about how we're positioning and pricing (the initial public offering)."

According to the prospectus, the manager is jointly owned by its sponsor KBS Asia Partners (60 per cent); Keppel Capital Two (30 per cent), a wholly owned subsidiary of Keppel Capital Management; and Experion Holdings (10 per cent stake), a wholly owned subsidiary of AT Holdings.

Times Properties, a wholly owned unit of Singapore Press Holdings (SPH), has also signed a call option agreement to acquire from KAP a 20 per cent stake in the manager after the listing date, subject to approvals. SPH owns The Business Times.

Prime US Reit has an initial portfolio comprising 11 Class A and freehold office properties with a total appraised value of US$1.2 billion.

The Reit's assets are located in nine high-growth office markets across the US: San Francisco Bay Area (Oakland), Salt Lake City, Denver, St Louis, Dallas, San Antonio, Philadelphia, Washington DC (suburban Maryland and Virginia), and Atlanta.

Ms Cambon said: "We chose not to build a portfolio around true traditional gateway markets, which historically have been New York City, Boston, Chicago, Los Angeles, because the capitalisation rates in these markets are extremely low. We didn't think that would provide an attractive product."

Its sponsor, KAP, is linked to KBS, one of the largest US commercial real estate managers with US$11.6 billion of assets under management as at end-December 2018.

KBS Pacific Advisors, one of the two sponsors of Keppel-KBS US Reit, is also related to KBS.

Ms Cambon said that should both Reits ever become interested in acquiring the same assets from KBS, each Reit has its own separate acquisition team. 
Also, their mandates differ slightly. While Prime US Reit is focused on Class A buildings, Keppel-KBS US Reit's assets are a combination of Class A and B buildings, mostly tech business campuses.(See clarification note)

Terms of the IPO deal remain largely similar to what was announced in the preliminary prospectus.

The offering of 335.2 million units consists of an international placement of 318.4 million units to investors outside the US, and an offering of at least 16.8 million units to the public in Singapore.

Concurrently, Prime US Reit has secured commitments of US$317 million from nine cornerstone investors including AT Investments, Keppel Capital, Times Properties and Hiap Hoe Investment.

The cornerstone investors have subscribed for 360.3 million units, representing 39 per cent of the total units in issue immediately after completion of the offering.

KBS Real Estate Investment Trust III, which is selling the initial portfolio to Prime US Reit, has also signed a subscription agreement to subscribe for 228.4 million units, which will result in a 24.7 per cent stake in Prime US Reit.

The offering cum issuance is expected to raise gross proceeds of US$813 million altogether.

Sanjog Kusumwal, senior vice-president, capital markets, at DBS Bank, who is working on the deal, said that the offering structure differs slightly from most offerings which have placements first before public offers, for two reasons.

One, given uncertain market conditions, the issuer wanted the overlap between the retail and placement tranches to give retail investors a longer window to subscribe. Two, this way, the issuer can also decide on the optimal allocation between the retail and institutional tranches after knowing the demand for both by the same closing date.

The Singapore public offer opens at 9pm on July 8, 2019 and closes at noon on July 15, 2019. Trading of the units is expected to start on the mainboard at 2pm on July 19.

DBS Bank is the sole financial adviser and issue manager for the offering. The joint bookrunners and underwriters are DBS, Merrill Lynch (Singapore), China International Capital Corporation, Credit Suisse (Singapore), Maybank Kim Eng Securities and Oversea-Chinese Banking Corporation.

Clarification note:  This version of the story clarifies that the portfolios of Prime US Reit and Keppel-KBS US Reit differ in that the former comprises 100 per cent Class A buildings, while the latter is made up of a mix of Class A and B office buildings, comprising both business campuses and CBD offices.