SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

<p><em><strong>These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<h2>PRIME US REIT</h2>
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<h3>To thrive and not just weather</h3>
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<li>We still favor Prime US REIT for its diversified portfolio and organic growth potential derived from rental reversions and escalations. Prime US REIT remains resilient.</li>
<li>Overall occupancy dipped slightly QoQ to 93.0%. Nevertheless, portfolio WALE remains at 4.8 years. Only 3.3% and 7.4% of the leases by GRI are due to expire in FY20 and FY21.</li>
<li>FY20e yield remains attractive at 8.6%; Maintain BUY at a higher target price of US$0.94.</li>
</ul>
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<p><strong>The Positives</strong></p>
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<p><strong>+ NPI and DPU slightly surpassed expectations; minimal impact amidst COVID-19. </strong>Gross revenue and NPI is up 5.7% and 7.6% YoY in 1H20, attributable to its accretive acquisition of Park Tower acquired in 1Q20. NPI and DPU slightly surpassed our expectations, forming 50.6% and 51.5% of our estimates for FY20e. Income stream for 1H20 remained stable as 99% of the rents are collected for each month in 2Q. While rent deferrals for 8 small retail tenants (comprising 0.2% of CRI) are provided, no rent abatements are given. Rent collections in July continued the same trend in Q2. Built-in rental escalations of c.2% in leases contributing to 99.8% of the CRI provides a clear organic growth outlook for the REIT.</p>
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<p><strong>+ Stable lease expiry profile; Strong leasing activity in 1H20</strong>. Portfolio WALE remains at 4.8 years. Only 3.3% and 7.4% of the leases by GRI are due to expire in FY20 and FY21. Strong leasing activity was observed in 1H20 as Prime reaped 82k sqft in new leases and renewals (of which 30k sqft was secured in 2Q) at an average positive rental reversion of 8.5%. Over 60% of 1H20’s leases were renewals and expansions. The portfolio’s reversion potential is underpinned by leases that are rented at an average of 7.5% below market.</p>
<p><strong>+ Healthy gearing levels and ample debt headroom</strong>. Prime’s gearing and interest coverage ratio improved from 33.7% to 33% and 5.1x to 5.4x respectively, with $91.4mn available undrawn facility to tap on for future growth opportunities. Effective interest rate for the portfolio has been reduced to 2.6% from 3.3%. 90% of the debt is locked into fixed interest rates.</p>
<p><strong>The Negatives</strong></p>
<p><strong>- Overall portfolio occupancy dipped QoQ from 94.9% to 93.0%.</strong> Decline in portfolio occupancy in Q2 is mainly due to the expiring leases in Village Center I and 171 17th Street. A property developer and Holland and Hart exited Village Center post-development of Village Center III. The market is still active and there has been interest from the financial and technology industry over the past 2 months. Also, Wells Fargo returned some of their space in 171 17th street post expiry of the previous lease extension. The management is confident in leasing out the vacant space as 171 17th street is the strongest submarket in Atlanta. This is supported by Microsoft’s decision to lease 100% of Atlantic Station, a property across the street from Prime’s property.</p>
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These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
PRIME US REIT

To thrive and not just weather



We still favor Prime US REIT for its diversified portfolio and organic growth potential derived from rental reversions and escalations. Prime US REIT remains resilient.
Overall occupancy dipped slightly QoQ to 93.0%. Nevertheless, portfolio WALE remains at 4.8 years. Only 3.3% and 7.4% of the leases by GRI are due to expire in FY20 and FY21.
FY20e yield remains attractive at 8.6%; Maintain BUY at a higher target price of US$0.94.



The Positives




+ NPI and DPU slightly surpassed expectations; minimal impact amidst COVID-19. Gross revenue and NPI is up 5.7% and 7.6% YoY in 1H20, attributable to its accretive acquisition of Park Tower acquired in 1Q20. NPI and DPU slightly surpassed our expectations, forming 50.6% and 51.5% of our estimates for FY20e. Income stream for 1H20 remained stable as 99% of the rents are collected for each month in 2Q. While rent deferrals for 8 small retail tenants (comprising 0.2% of CRI) are provided, no rent abatements are given. Rent collections in July continued the same trend in Q2. Built-in rental escalations of c.2% in leases contributing to 99.8% of the CRI provides a clear organic growth outlook for the REIT.








+ Stable lease expiry profile; Strong leasing activity in 1H20. Portfolio WALE remains at 4.8 years. Only 3.3% and 7.4% of the leases by GRI are due to expire in FY20 and FY21. Strong leasing activity was observed in 1H20 as Prime reaped 82k sqft in new leases and renewals (of which 30k sqft was secured in 2Q) at an average positive rental reversion of 8.5%. Over 60% of 1H20’s leases were renewals and expansions. The portfolio’s reversion potential is underpinned by leases that are rented at an average of 7.5% below market.
+ Healthy gearing levels and ample debt headroom. Prime’s gearing and interest coverage ratio improved from 33.7% to 33% and 5.1x to 5.4x respectively, with $91.4mn available undrawn facility to tap on for future growth opportunities. Effective interest rate for the portfolio has been reduced to 2.6% from 3.3%. 90% of the debt is locked into fixed interest rates.
The Negatives
- Overall portfolio occupancy dipped QoQ from 94.9% to 93.0%. Decline in portfolio occupancy in Q2 is mainly due to the expiring leases in Village Center I and 171 17th Street. A property developer and Holland and Hart exited Village Center post-development of Village Center III. The market is still active and there has been interest from the financial and technology industry over the past 2 months. Also, Wells Fargo returned some of their space in 171 17th street post expiry of the previous lease extension. The management is confident in leasing out the vacant space as 171 17th street is the strongest submarket in Atlanta. This is supported by Microsoft’s decision to lease 100% of Atlantic Station, a property across the street from Prime’s property.








Non-SGX Report: Prime US Reit: To Thrive and Not Just Weather

<h2>10 Questions for Prime US REIT</h2>
<p><strong>Company Overview</strong><br>Prime US REIT (PRIME) has a focus on stabilised income-producing office assets in the US. PRIME offers investors a unique exposure to a high-quality, geographically diversified portfolio of 12 prime and freehold office properties, strategically located in 10 primary markets in the US, with a total appraised value of US$1.42 billion as at 31 March 2020.</p>
<ol>
<li><strong>What are some of PRIME’s notable developments or achievements since the IPO?</strong></li>
</ol>
<p><strong>• </strong>PRIME has achieved several milestones since our listing in July 2019. Key highlights for 1Q2020 include:</p>
<p style="padding-left: 25px;">• Outperformance of gross revenue and net property income (NPI) against the IPO projection for 1Q2020. Gross revenue exceeded by 4.1% (US$35.1m vs. US$33.7m) and NPI exceeded by 6.7% (US$23.5m vs. US$22.0m). Distributable income exceeded the IPO projection by 12.9% (US$17.6m vs. US$15.6m).</p>
<p style="padding-left: 25px;">• Inclusion into MSCI Singapore Small Cap Index post-listing on 26 November 2019. We believe the inclusion will improve our trading liquidity and visibility within the investment community.</p>
<p style="padding-left: 25px;">• Maiden acquisition of Park Tower in Sacramento for US$165.5 million, funded by our first private placement in February 2020 – raising US$120.0 million, with the upsize option exercised. It was 4.8 times subscribed at the top end price of US$0.957 per new unit, driven by strong demand from long-only institutional investors, private wealth clients and multi-strategy funds.</p>

10 Questions for Prime US REIT
Company Overview Prime US REIT (PRIME) has a focus on stabilised income-producing office assets in the US. PRIME offers investors a unique exposure to a high-quality, geographically diversified portfolio of 12 prime and freehold office properties, strategically located in 10 primary markets in the US, with a total appraised value of US$1.42 billion as at 31 March 2020.

What are some of PRIME’s notable developments or achievements since the IPO?

• PRIME has achieved several milestones since our listing in July 2019. Key highlights for 1Q2020 include:
• Outperformance of gross revenue and net property income (NPI) against the IPO projection for 1Q2020. Gross revenue exceeded by 4.1% (US$35.1m vs. US$33.7m) and NPI exceeded by 6.7% (US$23.5m vs. US$22.0m). Distributable income exceeded the IPO projection by 12.9% (US$17.6m vs. US$15.6m).
• Inclusion into MSCI Singapore Small Cap Index post-listing on 26 November 2019. We believe the inclusion will improve our trading liquidity and visibility within the investment community.
• Maiden acquisition of Park Tower in Sacramento for US$165.5 million, funded by our first private placement in February 2020 – raising US$120.0 million, with the upsize option exercised. It was 4.8 times subscribed at the top end price of US$0.957 per new unit, driven by strong demand from long-only institutional investors, private wealth clients and multi-strategy funds.

10 in 10 with Prime US REIT - Primed for Robust Growth

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Manulife US REIT (MUST) / Equity Bottom-Up

<p>In my previous insights on Singapore REITs I have spoken about a number of different sectors, however, I haven't spoken about the overseas focussed REITs, so far.</p>
<p>In this insight, I'll take a closer look at some of the Singapore listed EU/US focussed REITs.</p>
<p>Links to my previous REITs insights:</p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/singapore-reits-what-s-been-cooking-this-year" target="_blank" rel="noopener">Singapore REITs - What’s Been Cooking This Year,</a> I spoke about how the REITs have performed this year and touched upon some of the factors that have been driving them. </li>
<li>
<a href="https://www.smartkarma.com/insights/trade-ideas-for-sgreits-retail-reits-share-price-has-been-more-resilient-than-it-should-be" target="_blank" rel="noopener">Trade Ideas for SGREITs - Retail REITs Share Price Has Been More Resilient than It Should Be,</a> I spoke about the factors that have been impacting retail REITs. </li>
<li>
<a href="https://www.smartkarma.com/insights/trade-ideas-sg-office-reits-this-time-it-s-different" target="_blank" rel="noopener">Trade Ideas SG Office REITs - This Time It’s Different</a> I spoke about how the office REITs might fare better.</li>
<li>
<a href="https://www.smartkarma.com/insights/trade-ideas-sg-industrial-reits-bigger-names-have-been-holding-up-a-little-too-well" target="_blank" rel="noopener">Trade Ideas SG Industrial REITs - Bigger Names Have Been Holding up a Little Too Well </a> I spoke about the industrial REITs</li>
<li>
<a href="https://www.smartkarma.com/insights/singapore-reits-get-out-of-jail-free-card-for-the-tenants" target="_blank" rel="noopener">Singapore REITs - Get Out of Jail Free Card, for the Tenants</a> I spoke about how the recent changes announced by the government would benefit the smaller tenants more than the landlords.</li>
</ul>

In my previous insights on Singapore REITs I have spoken about a number of different sectors, however, I haven't spoken about the overseas focussed REITs, so far.
In this insight, I'll take a closer look at some of the Singapore listed EU/US focussed REITs.
Links to my previous REITs insights:


Singapore REITs - What’s Been Cooking This Year, I spoke about how the REITs have performed this year and touched upon some of the factors that have been driving them. 

Trade Ideas for SGREITs - Retail REITs Share Price Has Been More Resilient than It Should Be, I spoke about the factors that have been impacting retail REITs. 

Trade Ideas SG Office REITs - This Time It’s Different I spoke about how the office REITs might fare better.

Trade Ideas SG Industrial REITs - Bigger Names Have Been Holding up a Little Too Well  I spoke about the industrial REITs

Singapore REITs - Get Out of Jail Free Card, for the Tenants I spoke about how the recent changes announced by the government would benefit the smaller tenants more than the landlords.


Trade Ideas SG EU/US Focus REITs - The Orphaned Lot Is Starting to Look Interesting

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      <img src='https://api2.sgx.com/sites/default/files/2020-03/PrimeUSREIT-CEO.jpg' alt='Prime US REIT CEO' />
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    <div class='content-caption'>Prime US REIT CEO</div>
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<p>For property veteran Barbara Cambon, buildings are not just a heap of bricks and concrete. Instead, they are dynamic structures where people learn, work, play and dream.<br><br>
"Real estate is viewed as solid structures, but we must also understand the dynamism and diversity that goes on within these physical assets, and how they can meet the constantly evolving needs of their occupants," said the Chief Executive Officer of the Manager of SGX-listed Prime US REIT (PRIME).<br><br>
Cambon, who began her real estate career in the early 1980s, is no stranger to forces of transformation within the industry.<br><br>
"The way that tenants use our buildings will continue to change, as will the type and nature of the tenants who want to use our buildings," she added.<br><br>
The 65-year-old, who is also Chief Investment Officer of the Manager, has accumulated experience in institutional real estate advisory, including roles with a US-based private real estate investment firm and real estate consulting company.<br><br>
A Master of Business Administration graduate from Southern Methodist University, Cambon also holds a Bachelor of Science degree in Education from the University of Delaware.<br><br>
She sits on the Policy Advisory Board of the University of San Diego Burnham-Moores Real Estate Institute. Previous board positions include the Pension Real Estate Association, National Council of Real Estate Investment Fiduciaries and Amstar Advisers.<br><br>
"Helping clients identify how real estate fits their needs, how they should build their investment platforms, as well as develop the fundamentals of their asset selection strategies - all of that has shaped my experience," she said.<br><br>
Today, those skillsets stand Cambon in good stead to drive expansion at PRIME.<br><br>
Listed on 19 July 2019 on SGX Mainboard, PRIME is focused on stabilised, income-producing US office assets. It owns a high-quality, geographically diversified portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of approximately US$1.25 billion.<br><br>
The portfolio is well-diversified - no primary market contributes more than 14.6%, and no single trade sector accounts for more than 16.6%, of total portfolio value. Portfolio occupancy rates remain high at over 95%, with a long average weighted average lease expiry (WALE) of 5.1 years as at 31 December 2019.<br><br>
The REIT has an average debt to maturity of 5.2 years at a weighted average interest rate of 3.3%. Its gearing ratio remains healthy, at 33.7%.<br><br>
PRIME has gained about 9.1% since listing at an initial public offer (IPO) price of 88 US cents. For its fourth quarter ended 31 December 2019, the REIT posted a distribution per unit (DPU) of 1.77 US cents, 9.3% higher than its IPO forecast of 1.62 US cents.</p>

<p><strong>Stable Resilience</strong><br><br>
"We're focused on the markets where corporate America wants to grow," Cambon said. "Employees of today are looking for live-work environments with shorter commutes, and those that include a balanced work-play dynamic."<br><br>
PRIME is focused on identifying US markets with signs of robust jobs expansion, and large numbers of highly educated employees. Other criteria include areas with higher than national average population growth rates, as well a relatively lower cost of living to attract in-migration of talent.<br><br>
Corporations are no longer just focusing on major gateway cities. This can be seen from how Salt Lake City has grown in importance for Goldman Sachs, or how Amazon nixed New York in favour of Northern Virginia for its HQ2, she noted.<br><br>
"Key factors that matter today include a lower cost of living, a balanced live-work-play environment, as well as proximity to major universities with access to a talented workforce."<br><br>
Last month, PRIME acquired the Park Tower office building, situated in the prime central business district (CBD) of Sacramento, California, for US$165.5 million. The property is a freehold, 24-storey Class A office tower with a five-storey, mixed-use retail or parking garage, comprising a net lettable area of 489,171 square feet.<br><br>
"Sacramento is a new market that diversifies our geographical exposure, and introduces a new industry sector - Government - that adds stability to the portfolio," Cambon pointed out.<br><br>
"The real estate market in California's capital is also robust, with low vacancy rates, healthy rent growth, high demand and limited new supply."<br><br>
PRIME's maiden acquisition is yield-accretive, boosting its portfolio value to approximately US$1.42 billion. On a pro forma basis, it provides an uplift of 2.7% and 0.1% to DPU and net asset value (NAV) respectively.<br><br>
To further grow these two closely watched industry metrics, the REIT will focus on both organic and inorganic strategies. "For our portfolio, 98% of the leases have built-in rental escalations that range from 1% to 3%," Cambon said.<br><br>
Active asset management is another route. "The construction of our portfolio is focused on resilience and stability - we want to ensure we don't have the bulk of our leases maturing in the space of any one year, and there is diversity in terms of tenant-industry mix," she added.<br><br>
"We also want to manage the space dynamics within each asset - for tenants looking to grow within the building, we want to accommodate their needs, and at the same time, help other tenants whose needs may be best-served by moving elsewhere."<br><br>
All of these require a thorough understanding of the office real estate space, and application of the right criteria to asset selection, she added.<br><br>
As for growth via acquisitions, PRIME is targeting yield-accretive assets in strategic markets where US corporations are expanding their operations.<br><br>
"We're able to leverage on the organisational resources of our sponsor, KBS Asia Partners, whose shareholders include the founding members of KBS," Cambon said.<br><br>
KBS is one of the largest US commercial real estate managers with more than US$41.8 billion of transactional volumes since its inception in 1992. "Having that depth of experience in these markets and being well-known in the community, they can identify and open up suitable opportunities for us."<br><br>
Apart from its sponsor's support, PRIME also has flexibility to focus on assets owned by third parties, as in the case of the Sacramento Park Tower acquisition, she added.</p>

<p><strong>Space Optimisation</strong><br><br>
With the spread of the COVID-19 coronavirus, PRIME is closely monitoring the pandemic's impact on the US economy. Several major cities, including New York, have ordered schools, bars and restaurants to shut, while some retailers have closed stores, as authorities urged social distancing in a bid to stem the outbreak.<br><br>
The office market, on the other hand, has been resilient. "There's a limited supply of Class A offices, with the key office-using sectors of Financial Services, Professional Services and Information increasing jobs by 150,000 in the fourth quarter of last year," Cambon noted.<br><br>
"With a similar amount of new supply added, vacancy rates remained stable in view of the tight labour market."<br><br>
Segments that enjoy long-term leases may see less of an impact from the pandemic, the Washington, DC-based National Association of Real Estate Investment Trusts (Nareit) said in a recent blog post.<br><br>
"An apartment REIT with low vacancy rates will still have their tenants paying rent, and may not suffer any lost income. Similarly, an office REIT with investment grade tenants is not likely to experience a drop in occupancy or rent receipts," it added.<br><br>
Meanwhile, the tenant-industry mix in PRIME's portfolio is evolving. "In the past, Financial Services tenants made up the majority of our tenants. But in the past year, Technology has seen the biggest take-up rates for office space among all sectors, and is expected to continue its outperformance through 2020," Cambon said.<br><br>
This benefits PRIME, which has a more than 37% exposure to the rapidly expanding STEM (Science, Technology, Engineering and Mathematics) and TAMI (Technology, Advertising, Media and Information) segments.<br><br>
Nonetheless, one of the biggest challenges PRIME faces comes from identifying and meeting continually changing needs of tenants within its portfolio.<br><br>
"We need to understand how space use is changing, and provide our tenants with the most contemporary amenities to keep our buildings modern and fresh."<br><br>
Examples include conferencing facilities for remote workers, as well as strategically located fitness centres, bicycle parking and storage lockers for those with more active lifestyles.<br><br>
"There's also increasing demand for collaborative spaces, such as tenant lounges, where staff can relax, hang out or work with their laptops near their offices," she added.<br><br>
And when Cambon is not immersed in the day-to-day operations of the REIT, she enjoys interacting with the young - and hopefully - future leaders of the real estate industry.<br><br>
"One of the cool things I get to do is to teach a class," she smiled, referring to her role on policy advisory boards of US educational institutions.<br><br>
To the young, she has this advice to offer: Stay current as the world continues to evolve, and the industry along with it.<br><br>
"The next generation will have access to more resources, such as technology and knowledge, compared to the previous generation," she said. "So the onus is on you to pull together all these experiences, and harness available resources, to become the best operator you can be of any asset."<br><br>
Education should also be a priority, she added. "Learning never stops, whether at an individual or industry level. So make sure you are constantly learning, and learning something new every day."</p>

<p><strong>Prime US REIT</strong></p>

<p>Listed on 19 July 2019 on SGX Mainboard, Prime US REIT (PRIME) is a diversified Singapore REIT with a focus on stabilised income-producing office assets in the US. PRIME offers investors a unique exposure to a high-quality portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of US$1.25 billion. KBS Asia Partners Pte Ltd (KAP) is the sponsor of PRIME. KAP's shareholders include founding members of KBS, which is one of the largest US commercial real estate managers with US$11.6 billion of assets under management as at 31 December 2019, and more than US$41.8 billion of transactional volume since inception in 1992.</p>

<p>The company website is: <a href="http://edm.sgx.com/a/hBefV4jB86%24MfB91genAAAAAAmP/link7"><strong>primeusreit.com</strong></a>.<br><br>
Click <a href="http://edm.sgx.com/a/hBefV4jB86%24MfB91genAAAAAAmP/link8"><strong>here</strong></a> for the company's StockFacts page.<br><br>
For fourth quarter ended 31 Dec 2019 financial results, click <a href="http://edm.sgx.com/a/hBefV4jB86%24MfB91genAAAAAAmP/link9"><strong>here</strong></a>.</p>
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    Prime US REIT CEO


For property veteran Barbara Cambon, buildings are not just a heap of bricks and concrete. Instead, they are dynamic structures where people learn, work, play and dream.  
"Real estate is viewed as solid structures, but we must also understand the dynamism and diversity that goes on within these physical assets, and how they can meet the constantly evolving needs of their occupants," said the Chief Executive Officer of the Manager of SGX-listed Prime US REIT (PRIME).  
Cambon, who began her real estate career in the early 1980s, is no stranger to forces of transformation within the industry.  
"The way that tenants use our buildings will continue to change, as will the type and nature of the tenants who want to use our buildings," she added.  
The 65-year-old, who is also Chief Investment Officer of the Manager, has accumulated experience in institutional real estate advisory, including roles with a US-based private real estate investment firm and real estate consulting company.  
A Master of Business Administration graduate from Southern Methodist University, Cambon also holds a Bachelor of Science degree in Education from the University of Delaware.  
She sits on the Policy Advisory Board of the University of San Diego Burnham-Moores Real Estate Institute. Previous board positions include the Pension Real Estate Association, National Council of Real Estate Investment Fiduciaries and Amstar Advisers.  
"Helping clients identify how real estate fits their needs, how they should build their investment platforms, as well as develop the fundamentals of their asset selection strategies - all of that has shaped my experience," she said.  
Today, those skillsets stand Cambon in good stead to drive expansion at PRIME.  
Listed on 19 July 2019 on SGX Mainboard, PRIME is focused on stabilised, income-producing US office assets. It owns a high-quality, geographically diversified portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of approximately US$1.25 billion.  
The portfolio is well-diversified - no primary market contributes more than 14.6%, and no single trade sector accounts for more than 16.6%, of total portfolio value. Portfolio occupancy rates remain high at over 95%, with a long average weighted average lease expiry (WALE) of 5.1 years as at 31 December 2019.  
The REIT has an average debt to maturity of 5.2 years at a weighted average interest rate of 3.3%. Its gearing ratio remains healthy, at 33.7%.  
PRIME has gained about 9.1% since listing at an initial public offer (IPO) price of 88 US cents. For its fourth quarter ended 31 December 2019, the REIT posted a distribution per unit (DPU) of 1.77 US cents, 9.3% higher than its IPO forecast of 1.62 US cents.

Stable Resilience  
"We're focused on the markets where corporate America wants to grow," Cambon said. "Employees of today are looking for live-work environments with shorter commutes, and those that include a balanced work-play dynamic."  
PRIME is focused on identifying US markets with signs of robust jobs expansion, and large numbers of highly educated employees. Other criteria include areas with higher than national average population growth rates, as well a relatively lower cost of living to attract in-migration of talent.  
Corporations are no longer just focusing on major gateway cities. This can be seen from how Salt Lake City has grown in importance for Goldman Sachs, or how Amazon nixed New York in favour of Northern Virginia for its HQ2, she noted.  
"Key factors that matter today include a lower cost of living, a balanced live-work-play environment, as well as proximity to major universities with access to a talented workforce."  
Last month, PRIME acquired the Park Tower office building, situated in the prime central business district (CBD) of Sacramento, California, for US$165.5 million. The property is a freehold, 24-storey Class A office tower with a five-storey, mixed-use retail or parking garage, comprising a net lettable area of 489,171 square feet.  
"Sacramento is a new market that diversifies our geographical exposure, and introduces a new industry sector - Government - that adds stability to the portfolio," Cambon pointed out.  
"The real estate market in California's capital is also robust, with low vacancy rates, healthy rent growth, high demand and limited new supply."  
PRIME's maiden acquisition is yield-accretive, boosting its portfolio value to approximately US$1.42 billion. On a pro forma basis, it provides an uplift of 2.7% and 0.1% to DPU and net asset value (NAV) respectively.  
To further grow these two closely watched industry metrics, the REIT will focus on both organic and inorganic strategies. "For our portfolio, 98% of the leases have built-in rental escalations that range from 1% to 3%," Cambon said.  
Active asset management is another route. "The construction of our portfolio is focused on resilience and stability - we want to ensure we don't have the bulk of our leases maturing in the space of any one year, and there is diversity in terms of tenant-industry mix," she added.  
"We also want to manage the space dynamics within each asset - for tenants looking to grow within the building, we want to accommodate their needs, and at the same time, help other tenants whose needs may be best-served by moving elsewhere."  
All of these require a thorough understanding of the office real estate space, and application of the right criteria to asset selection, she added.  
As for growth via acquisitions, PRIME is targeting yield-accretive assets in strategic markets where US corporations are expanding their operations.  
"We're able to leverage on the organisational resources of our sponsor, KBS Asia Partners, whose shareholders include the founding members of KBS," Cambon said.  
KBS is one of the largest US commercial real estate managers with more than US$41.8 billion of transactional volumes since its inception in 1992. "Having that depth of experience in these markets and being well-known in the community, they can identify and open up suitable opportunities for us."  
Apart from its sponsor's support, PRIME also has flexibility to focus on assets owned by third parties, as in the case of the Sacramento Park Tower acquisition, she added.

Space Optimisation  
With the spread of the COVID-19 coronavirus, PRIME is closely monitoring the pandemic's impact on the US economy. Several major cities, including New York, have ordered schools, bars and restaurants to shut, while some retailers have closed stores, as authorities urged social distancing in a bid to stem the outbreak.  
The office market, on the other hand, has been resilient. "There's a limited supply of Class A offices, with the key office-using sectors of Financial Services, Professional Services and Information increasing jobs by 150,000 in the fourth quarter of last year," Cambon noted.  
"With a similar amount of new supply added, vacancy rates remained stable in view of the tight labour market."  
Segments that enjoy long-term leases may see less of an impact from the pandemic, the Washington, DC-based National Association of Real Estate Investment Trusts (Nareit) said in a recent blog post.  
"An apartment REIT with low vacancy rates will still have their tenants paying rent, and may not suffer any lost income. Similarly, an office REIT with investment grade tenants is not likely to experience a drop in occupancy or rent receipts," it added.  
Meanwhile, the tenant-industry mix in PRIME's portfolio is evolving. "In the past, Financial Services tenants made up the majority of our tenants. But in the past year, Technology has seen the biggest take-up rates for office space among all sectors, and is expected to continue its outperformance through 2020," Cambon said.  
This benefits PRIME, which has a more than 37% exposure to the rapidly expanding STEM (Science, Technology, Engineering and Mathematics) and TAMI (Technology, Advertising, Media and Information) segments.  
Nonetheless, one of the biggest challenges PRIME faces comes from identifying and meeting continually changing needs of tenants within its portfolio.  
"We need to understand how space use is changing, and provide our tenants with the most contemporary amenities to keep our buildings modern and fresh."  
Examples include conferencing facilities for remote workers, as well as strategically located fitness centres, bicycle parking and storage lockers for those with more active lifestyles.  
"There's also increasing demand for collaborative spaces, such as tenant lounges, where staff can relax, hang out or work with their laptops near their offices," she added.  
And when Cambon is not immersed in the day-to-day operations of the REIT, she enjoys interacting with the young - and hopefully - future leaders of the real estate industry.  
"One of the cool things I get to do is to teach a class," she smiled, referring to her role on policy advisory boards of US educational institutions.  
To the young, she has this advice to offer: Stay current as the world continues to evolve, and the industry along with it.  
"The next generation will have access to more resources, such as technology and knowledge, compared to the previous generation," she said. "So the onus is on you to pull together all these experiences, and harness available resources, to become the best operator you can be of any asset."  
Education should also be a priority, she added. "Learning never stops, whether at an individual or industry level. So make sure you are constantly learning, and learning something new every day."

Prime US REIT

Listed on 19 July 2019 on SGX Mainboard, Prime US REIT (PRIME) is a diversified Singapore REIT with a focus on stabilised income-producing office assets in the US. PRIME offers investors a unique exposure to a high-quality portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of US$1.25 billion. KBS Asia Partners Pte Ltd (KAP) is the sponsor of PRIME. KAP's shareholders include founding members of KBS, which is one of the largest US commercial real estate managers with US$11.6 billion of assets under management as at 31 December 2019, and more than US$41.8 billion of transactional volume since inception in 1992.

The company website is: primeusreit.com.  
Click here for the company's StockFacts page.  
For fourth quarter ended 31 Dec 2019 financial results, click here.



Prime US REIT: Harnessing the Live-Work-Play Dynamic

Equity Capital Markets

United Hampshire US REIT / Equity Capital Markets

<div><p>United Hampshire US REIT (UHUS) raised around US$324m in its Singapore IPO. UHUS will invest in  grocery-anchored and necessity-based retail properties, and self-storage facilities, located in the U.S. </p></div><div><p>The initial portfolio consists of 22 assets with an aggregate net lettable area (NLA) of 3.17m sqft on the East Coast of the U.S. The portfolio comprises 18 grocery &amp; necessity properties with a total NLA of 2.86m sq ft and four self-storage properties with a total NLA of 0.31m sq ft. The aggregate purchase consideration payable is US$582.5m.</p></div><div>
<p>In my previous notes I looked at:</p>
<ul><li>The company’s past performance and highlighted some of the issues, <a href="https://www.smartkarma.com/insights/united-hampshire-us-reit-ipo-e-commerce-resistant-maybe-but-still-not-doing-great" target="_blank" rel="noopener">United Hampshire US REIT IPO - E-Commerce Resistant Maybe but Still Not Doing Great</a>, </li></ul>
</div><div>
<ul><li>Talked about valuations and ran the deal through our ECM framework, <a href="https://www.smartkarma.com/insights/united-hampshire-us-reit-ipo-yield-looks-enticing-but-falls-short-on-multiple-measures" target="_blank" rel="noopener">United Hampshire US REIT IPO - Yield Looks Enticing but Falls Short on Multiple Measures</a>
</li></ul>
<p>In this insight, I'll re-visit some of the deal dynamics and provide a table with implied valuations at different share prices.</p>
</div>

United Hampshire US REIT (UHUS) raised around US$324m in its Singapore IPO. UHUS will invest in  grocery-anchored and necessity-based retail properties, and self-storage facilities, located in the U.S. The initial portfolio consists of 22 assets with an aggregate net lettable area (NLA) of 3.17m sqft on the East Coast of the U.S. The portfolio comprises 18 grocery &amp; necessity properties with a total NLA of 2.86m sq ft and four self-storage properties with a total NLA of 0.31m sq ft. The aggregate purchase consideration payable is US$582.5m.
In my previous notes I looked at:
The company’s past performance and highlighted some of the issues, United Hampshire US REIT IPO - E-Commerce Resistant Maybe but Still Not Doing Great, 

Talked about valuations and ran the deal through our ECM framework, United Hampshire US REIT IPO - Yield Looks Enticing but Falls Short on Multiple Measures

In this insight, I'll re-visit some of the deal dynamics and provide a table with implied valuations at different share prices.


United Hampshire US REIT IPO Trading - Peers Have Corrected by 5-13%

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United Hampshire US REIT (UHUS) raised around US$324m in its Singapore IPO. UHUS will invest in grocery-anchored and necessity-based retail...

Sumeet Singh

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