Prime US REIT primed for IPO, plans to lodge prospectus on June 28

Goola Warden

SINGAPORE (June 24): Singapore could soon see the listing of the third US REIT for  the year.

According to documents viewed by The Edge Singapore, KBS REIT III, the owner of the assets that will be sold into Prime US REIT is readying the latter for an IPO.

The plan – if all goes well – is to lodge the prospectus on June 28, and the REIT should start trading on July 18 or 19.

The reason for the decision to push ahead with the IPO is to launch it by June 30 for accounting reasons.

The investment banks appear to have cornerstone investors committed to about 50% of the new REIT IPO.

KBS REIT III will be holding 24.7% or units valued at US$201 million. Keppel Capital will receive US$53 million ($71.8 million) or 9% of the REIT and will own 30% of the REIT manager.

Singapore Press Holdings will also commit to US$53 million of units, or 9% of the REIT and will have a stake in 20% of the manager subject to approval by the Monetary Authority of Singapore.

AT Capital will take up US$61 million of the offer, and own 8% of the REIT at IPO.

Institutional investors and family offices have shown an interest in an additional US$122 million of the offering.

The sponsor-related entity will be holding just 1.2% of the REIT.

The total commitment and potential interested parties is US$307 million or 50% of the IPO size of US$612 million, and the market cap at IPO is US$813 million with AUM size of US$1.2 billion.

At the IPO price, the DPU yield forecast for 2019 is 7.4% and for FY2020 7.6%. Gearing at IPO will be 37%.

Since more than five investors own less than 50% of the REIT (the so-called widely held rule), unitholders should receive the 7.4% as a net yield.

Prime US REIT’s nearest competitor is Manulife US REIT which is trading at a yield of 7% based on an annualised DPU of 6.04 US cents. Its gearing ratio as at Mar 31 is 37.6%, AUM is US$1.8 billion, and market cap is US$1.1 billion. As at Mar 31, NAV is 80 US cents, and price to book is 1.075 times.

Whether the local market has the appetite for the year’s third potential REIT listing remains to be seen. Some fund managers are warning of REIT fatigue, with so many REIT placements and IPOs.