KBS Prime US Reit plans up to US$705 million IPO in June

Singapore

KBS Realty Advisors, the US-based real estate private equity firm which has been eyeing a second Reit listing in Singapore since last year, is reaching out to investors again with plans to list KBS Prime US Reit in June.

The initial public offering (IPO) could raise up to US$705 million, giving Prime US Reit a market capitalisation of around US$840 million on its debut, according to revised deal terms seen by The Business Times.

The listing portfolio comprises 11 Class A office buildings, with 3.4 million sq ft of net lettable area, valued at US$1.2 billion. The properties are from the KBS REIT III fund, and are located across Oakland, Salt Lake City, Denver, St Louis, Dallas, San Antonio, Philadelphia, Washington DC and Atlanta.

The Reit promises a distribution yield of 7.25-7.4 per cent for the 2019 financial year, instead of the 7-7.25 per cent range it had guided earlier.

The slight increase arises from the adoption of a more tax-efficient structure, after the US released proposed regulations last December, which clarified the tax position on the structure used by Singapore-listed US Reits. The simplified tax structure removes a tax leakage of roughly 1.5 per cent of distributable income.

Distribution yield is expected to rise to the 7.45 per cent to 7.6 per cent range in the 2020 financial year.

To give the Reit a higher debt headroom for acquisitions, leverage immediately upon listing will be 35 per cent, a reduction from the 37 per cent earlier indicated.

Pre-deal roadshows will be held in early May, according to the indicative timetable. The prospectus is expected to be lodged in mid-May, and registered at the end of May. The IPO is expected to take place in early June.

The offer size is around US$705 million, of which US$115 million will be taken up by Keppel Capital and AT Capital.

Keppel Capital will commit no less than US$55 million for a 6.5 per cent stake in the Reit's units. Keppel Capital is also taking a 30 per cent stake in the Reit manager.

AT Capital will commit no less than US$60 million for a 7.15 per cent stake in the Reit's units. AT Capital will also invest in a 10 per cent stake in the Reit manager.

KBS-related entities will take a 16 per cent stake in Prime US Reit's units. KBS Asia Partners, the Reit sponsor, will own a 60 per cent stake in the Reit manager.

Competition for funds among US Reit IPO hopefuls is growing.

Last Tuesday, ARA US Hospitality Trust lodged a prospectus to raise around US$451 million through an IPO in May.

Last Thursday, Eagle Hospitality Trust, a US hotel trust backed by Urban Commons, lodged an IPO prospectus to raise up to US$566 million. (see amendment note)

In 2017, Keppel Capital also partnered KBS for the IPO of Keppel-KBS US Reit that raised gross proceeds of US$553 million. Unlike Keppel-KBS US Reit, which has a portfolio of Class A and Class B offices, Prime US Reit's assets are Class A only.

Amendment note: An earlier version of this story referenced an outdated number with respect to how much EHT plans to raise. The article has been changed to reflect this.