Friday, February 14, 2020

PRIME US REIT - Maiden Distribution, Placement, DPU and NAV Accretive Acquisition





On 12 February 2020, PRIME US REIT requested for trading halt to announce the following:
  • Announcement of 4Q19 and FY19 results
  • Sale of new units at USD0.957 via private placement to raise USD 120m (inclusive of 20m upsize option exercised)
  • Acquisition of Park Tower in Downtown Sacramento, California for USD165.5m
  • Estimated maiden distribution of 4.11 US cent consisting of FY19 distribution and advance distribution for period 1 Jan 2020 - 20 Feb 2020 in relation to the private placement
See following announcement on SGX:
PSA - Please do not forget to send your W8-BEN to avoid the 30% withholding tax for your distribution!




Performance for 4Q19 and FY19
In my opinion, the REIT did fantastic in beating the forecast. It will be interesting to see where PRIME goes from here.

Source: FY19Results Presentation Slide, Page 6
  • 4Q2019
    • DPU of 1.77 US cents (9% above forecast of 1.63 US cents)
    • Gross Revenue of USD33.5m (Above forecast of USD32.9m due to higher rental income and recoveries income)
    • NPI of USD22.3m for the quarter (3% above forecast of USD21.3m)
    • Income available for distribution was USD16.4m (8.8% above forecast of USD15m)
  • FY2019
    • DPU of 3.15 US cents (7.5% above forecast of 2.93 US cents)
    • Income available for distribution at USD29.2m (7.3% above forecast of  US$27.2m)
    • Gross Revenue of USD60.7m (2.2% above forecast of USD59.4m)
    • NPI of USD40.2m (2.9% above forecast of USD39m)
FY2019's DPU of 3.15 US cents is for the period between 19 July 2019 - 31 Dec 2019. If we annualise this figure, we get 7.09 US cents. At today's closing price of USD1.040, this works out to an annualised yield of 6.8%.

Trivia: If you are a Singapore unitholder and you subscribed to the public tranche, your annualised yield on cost for your IPO units works out to be about 8.2% - the increasing forex rate has played a part in slightly raising this too.

Also do note the management is currently opting to receive 80% of their base fee in units and DPU will be lower if they opt to receive more or all of the base fee in cash.

Usage of Placement Proceeds
  • ~USD115m to partially fund acquisition of Park Tower, with remainder funded by debt.
  • ~USD5m to pay for fees and expenses in connection with private placement and acquisition.
  • Balance of gross proceeds (if any) to be used for general corporate and/or working capital purposes.
Acquisition of Park Tower
The property in question is Park Tower in Downtown Sacramento, California. The acquisition will be USD165.5m, representing a discount of  2.7% over its valuation of USD170.1m (given as at January 2020).

Source: Acquisition Presentation Slide, Page 8

This will expand their portfolio to include a new market, and the enlarged portfolio also adds government into the tenant mix.


Source: Acquisition Presentation Slide, Page 12 and 13

They touted Downtown Sacramento as "One of US's Strongest Real Estate Market".

Source: Acquisition Presentation Slide, Page 9
Collier's 4Q2019 report for Sacramento seems to support this:
  • 4Q2019 Average Asking Market Rates for Downtown Class A increased by 9.1% to USD3.35/SF y-o-y.
  • It was also mentioned in the last page of report that "Space constraints Downtown remains an issue with no sign of letting up any time soon".
Sere: Collier - 4Q2019 Office Report - Sacramento





Gearing after Acquisition and Placement
The aggregate gearing as at 31 December 2019 is indicated at 33.7% (Source: 4Q19 Financial Report, page 9 and FY19 Results Presentation Slide, page). Working out some calculations, the gearing should work out to 30% 33% - 33.1% after the placement and acquisition. (please correct me if I'm wrong - I'm happy to make any necessary corrections) (2020-02-17 - Made corrections to my calculation, my bad)

Source: FY19 Results Presentation Slide, Page 7

DPU and NAV Accretive Purchase
Taking a look at the 4Q19 Results and the Acquisition Presentation Slides, they have announced the private placement to fund the acquisition will be accretive to DPU, and to a much lesser degree, to NAV as well. I do wish there was a rights issue to participate in instead but understand their rationale behind the private placement.

Anyway, onto the main topic:

Source: Acquisition Presentation Slide, Page 15
So based on the presentation slides for the Acquisition, they are running the numbers with the following:
  • Assuming 106,045,000 new units are issued at illustrative price of USD0.943
  • Assuming raising only USD100m. The figure for overallotment being exercised is given in the footnotes.
  • Units to be issued for Management Base Fees on 31 Dec 2019 is excluded.
(a) Units to be issued for Management Base Fees Excluded
Based on the 4Q19 Financial Report (page 14), 1,374,720 units are to be issued for Management Base Fees. This is what they were referring to when they mention in the footnotes "Excludes units to be issued at 31 Dec 2019." While these units will not be entitled to FY2019 distribution, they will be entitled from 1 Jan 2020 onwards - that includes the advance distribution before the placement shares are issued. The changes are not meaningful and do not impact the numbers shown.

(b) Price and Number of new units
Illustrative Price of USD0.943 is the mean value of USD0.928 and 0.957 and rounded up from 0.9425. With 125,392,000 new units to be issued out at USD0.957, the numbers remains unchanged.

However, since over-allotment is exercised, the Pro-forma DPU and NAV is actually 3.20 US cents (after round up from 3.196) and USD0.894 respectively, remaining unchanged to what is mentioned in the footnotes.




Closing thoughts
I am happy with the outperformance from forecast and the acqusition being DPU-accretive. I am only finding it a pity I was not able to try and get more units during IPO and the early days since launch.

With the current USD/SGD exchange rate and my tiny shareholding of 1000 units, I should be getting about SGD55-56 for the distribution to be paid on 30 March 2020.

Still keeping fingers crossed for opportunity to participate in rights issue.

New Feature - Introducing Stock Database
While still in its infancy, I am excited to try out starting this project to maintain a database of stocks and personally tracking major announcement of shares.

You can check it up by accessing the the Database here! On the desktop website, you can also access the Database page via the tab on top, while you can also select the page from the dropdown box

PRIME US REIT and Lendlease Global Commercial REIT represents my initial entries to the database (yes I just started out and not done with past events yet, haha!) - feel free to check it out too!

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