Prime US REIT IPO stumbles on debut

U.S. one-dollar currency notes; taken September 2018.U.S. one dollar bills.

Prime US REIT became the latest U.S.-focused REIT to stumble on its trading debut on Singapore Exchange Friday.

The IPO was priced at US$0.88 a unit, or S$1.20 a unit for the Singapore public offer, but it opened Friday’s trade at US$0.865 and closed at the day’s high of US$0.88.

Bank of America-Merrill Lynch, the stabilizing manager for the offering, stepped in to acquire 3.77 million units at US$0.865 to US$0.88. That was out of a total of 10.72 million units changing hands during the session.

The offering had seen strong support from nine cornerstone investors, including subsidiaries of Keppel Capital and Singapore Press Holdings.

But U.S.-focused REITs haven’t always been warmly received on SGX, at least not immediately. Two other U.S.-focused REITs, Eagle Hospitality Trust and ARA US Hospitality Trust, stumbled on their debuts in May.

That may reflect a lack of familiarity among local investors with the U.S. property market, particularly for commercial properties, where leases can differ greatly compared with Singapore. The length of leases and the rental escalations can vary greatly between the two countries.

But Mohamed Nasser Ismail, head of equity capital markets at SGX, said the listing of a third pure-play U.S. REIT this year showed rising investor interest in that country’s property market.

“The three US REIT IPOs on SGX this year have raised close to US$1.7 billion – making them the top three IPOs in ASEAN year-to-date by funds raised – with Prime US REIT raising the highest at US$612 million,” he said in a statement Friday.

ASEAN stands for the 10-nation Association of Southeast Asian Nations.

Barbara Cambon, CEO and chief investment officer of KBS US Prime Property Management, the manager of Prime US REIT, said the IPO showed the market’s confidence in a portfolio offering a “unique geographically diversified exposure to the growing U.S. commercial real estate sector, as well as a strong potential for acquisition growth beyond the IPO portfolio.”

At least one analyst has also pointed to a strong outlook for the U.S. office market.

“The strong rebound in job numbers (June) in the U.S. indicates that hiring activity remains resilient for now, despite trade tensions,” Vijay Natarajan, an analyst at RHB, said in a note earlier this month on Manulife US REIT, another Singapore-listed U.S.-focused REIT.

“In the first quarter of 2019, expansionary activity accounted for 40 percent of leasing demand, led by tenants from the finance, technology, and co-working sectors, according to JLL’s research,” the note added.

Natarajan added that high replacement costs, especially in markets such as Atlanta where this is limited growth in new supply, are also supportive of the outlook.

Prime US REIT’s initial portfolio has 11 office properties across nine U.S. office markets: San Francisco Bay Area, Salt Lake City, Denver, St Louis, Dallas, San Antonio, Philadelphia, Washington D.C. and Atlanta.

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