SINGAPORE (July 8): KBS US Prime Property Management, the manager of Prime US REIT, has registered its final prospectus with the Monetary Authority of Singapore (MAS) in relation to its proposed offering and listing of units in Prime US REIT on the Mainboard of SGX.

This is expected to be the largest IPO on the Singapore Exchange year-to-date with market capitalisation of US$813 million ($1.1 billion). 

See: Prime US REIT files prelim IPO prospectus; selling 335 mil shares at 88 US cents each

The REIT intends to sell over 335.2 million units – 318.4 million units to investors outside of US and at least 16.8 million units to the public in Singapore – in its initial public offering (IPO) at an offering price of 88 US cents per unit ($1.20 per unit for Singapore offering) to raise up to US$295 million.

In addition, KBS REIT Properties III, an indirect wholly-owned subsidiary of KBS Real Estate Investment Trust III, which is selling the initial portfolio to Prime US REIT, has entered into an agreement to subscribe about 228.4 million units, resulting in a 24.7% stake in Prime US REIT.

Separately, Prime US REIT has secured commitments from nine cornerstone investors -- including wholly-owned subsidiaries of Keppel Capital and Singapore Press Holdings -- who have subscribed for an aggregate of about 360.3 million units, representing a 39% stake.

The Singapore public offer opens at 9pm tonight and closes at 12 noon on July 15.

Based on this offering price, the REIT offers a distribution yield of 7.4% in forecast year 2019 and 7.6% in projection year 2020, representing a distribution yield growth of 3.1%.

The manager is 60% owned by KAP; 30% owned by Keppel Capital Two, a subsidiary of Keppel Capital Management; and 10% owned by Experion Holdings, a wholly-owned subsidiary of AT Holdings.

Times Properties, a wholly-owned subsidiary of Singapore Press Holdings (SPH), has entered into a call option agreement to acquire a 20% in the manager from KAP after the listing date, subject to MAS approval.

As at Dec 31, 2018, Prime US REIT’s portfolio consists of 11 high-quality, Class A and freehold office properties with a total appraised value of US$1.2 billion.

The assets are located in nine key 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 – and have an aggregate net lettable area (NLA) of 3.4 million sq ft.

The IPO portfolio has an occupancy rate of 96.7%, with a base of more than 180 tenant across diverse trade sectors including financial, legal, real estate, technology and information services. The portfolio also has a long weighted average lease expiry (WALE) of 5.5 years based on NLA and its top 10 tenants have long-tenured leases with a WALE of 6.7 years.

It also enjoys a well spread-out lease expiry profile, with a three-year average lease expiry by NLA and cash rental income of 6.6% and 6.5%, respectively.

The REIT is backed by its sponsor KBS Asia Partners and benefits from its association with KBS.

Prime US REIT’s yield growth is driven by 98.3% of contracted leases having built-in escalation clauses on a fixed rate basis, ranging annually between 1.0% and 3.0%.

Also, 96.9% of its leases by NLA are on triple-net or modified/full service gross basis, shielding Prime US REIT from increases in real estate taxes and property expenses.

The REIT says that it aims to provide unitholders with regular and stable distributions and to achieve long-term growth in distribution per unit and net asset value per unit, while maintaining an appropriate capital structure.

From the listing date to the end of projection year 2020, the REIT’s distribution policy is to distribute 100% of its annual distributable income. Thereafter, it will distribute at least 90% of its annual distributable income.

Distributions are expected to be made semi-annually and declared in US dollars.  

DBS Bank is the sole financial adviser and issue manager for the offering.

Barbara Cambon, CEO and chief investment officer of the manager, says, “We are delighted with the strong response to our IPO, with firm support from prominent cornerstone investors and high net worth individuals. This is indeed a vote of confidence in our portfolio and its visible growth potential underpinned by built-in rental escalations and rental reversion potential as well as inorganic growth potential.”

“Our high-quality portfolio of prime office properties is well-diversified and strategically located in nine primary markets in the US that are in the “landlord-favourable” part of the office market cycle, where rents continue to grow, backed by robust economic and employment growth,” Cambon adds.