Prime US REIT to acquire 2 US office properties for around US$246M

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

Prime US REIT has entered deals to acquire two U.S. properties — one in California and the other in Florida — for around US$245.5 million, the REIT’s manager said in a filing to SGX Thursday.

The deals will be funded by a combination of loans and a private placement of new units.

The private placement will be priced between US$0.797 and US$0.822 each to raise at least US$80 million, with the potential to increase the offering size to raise up to an additional US$20 million, Prime US REIT said. The pricing is at a 5.8 percent to 8.6 percent discount to the volume weighted average price of trades in the unit on Wednesday, the filing said.

The acquisitions are in line with a strategy to focus on increasing exposure to sectors such as STEM/TAMI and established industry sectors poised to benefit from growth in technology and life sciences and from the migration of wealth and people to affordable locales with lower taxes and away from denser, more expensive cities, the statement said.

The deals are expected to provide a distribution per unit accretion of 2.4 percent, with a pro forma post-acquisition DPU of 7.11 US cents for 2020 compared with a 6.94 US cent DPU pre-acquisition.

The California property, the Sorrento Towers located in San Diego, will be acquired for US$146 million; the site, built in 1989, has 95.6 percent occupancy for its nearly 300,000 square feet of net leasable area, the filing said, noting there are 11 tenants in the two seven-storey office towers.

“The acquisition of Sorrento Towers in Sorrento Mesa will expand Prime US REIT’s foothold to Southern California, gaining exposure to the technology and life science-focused economy of San Diego,” the REIT said.

The REIT added that market rent in the area continues to increase and is currently trending above Sorrento Tower’s contracted rents, indicating potential rental reversion of 7-10 percent once current leases are renewed. The implied capitalisation rate rate is 5.3 percent, the REIT said.

The Florida property, One Town Center located in Boca Raton, will be acquired for US$99.5 million; the 10-storey office tower, built in 1991, has 14 tenants and an occupancy rate of 94.7 percent, the filing said. Bank of America Merrill Lynch is an anchor tenant, occupying around 34 percent of the building, and Raymond James is also a tenant.

“One Town Center in Boca Raton extends Prime US REIT’s presence into Florida, which is poised to benefit from the trend of immigration of businesses, population and wealth towards South-eastern United States, supporting the long term demand outlook of the submarket,” the REIT said.

The implied capitalisation rate for the property is 5.8 percent, the REIT said.