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:

• Full Yearly Result for FY2019
• Launch of Private Placement to Raise Proceeds of not less than USD 100m
• Acquisition of Park Tower
• Capital Distribution - Mandatory

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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Portfolio Update 4Q2019 / The Year-End Review

In the blink of an eye, 2019 4th quarter has come to an end and it's time to usher in the year 2020. Setting new resolutions to meet for the year or years ahead, so as to meet targets ranging anywhere, in varying degree of magnitude. It could be investment goals, academic goals or just some other personal goals to become a better self or to fulfill one's bucket list.

For my blog, you know what each end of the quarter means - It's time for another portfolio update!

Portfolio 4Q2019

Notes
1 - Based on EUR:SGD conversion of 1.5095 to Dec 31st closing price of EUR 0.540
2 - Based on USD:SGD conversion of 1.3446 to Dec 31st closing price of USD 0.965
3 - Alita Resources is previously known as Alliance Minerals Assets Limited. As of 3Q2019, I have decided to write-off Alita Resources due to high likelihood of being a total loss. This may, however remote, change if a miracle happens.

No new transactions has taken place in comparison to the 7th October 2019 update, however there is *a hairline* appreciation in value.

The Year In Review
I have decided to break reviewing the year's events and targets down to "the good, the bad and the ugly". This covers both the portfolio and other goals I had planned for 2019.

You may want to read last year's review as it holds relevance to the rest of this post.

The Good

• Satisfactory performance from the income portfolio. The decision to try my luck for excess rights share and triple my holdings in Cromwell European REIT towards the end of last year was the right call and is the main star to thank here. 
• Managing to add position in shares for Prime REIT and Lendlease GCREIT, albeit tiny positions, as well as channeling any dividends/distributions earned to compound my gains.
• In position to take slight advantage of foreseen rights issue for Prime US REIT and Lendlease GCREIT (By the way, I hope you have already send your Form W-8 BEN and your opting of receiving distributions in USD or SGD).
• The change in employment in June 2019 has afforded me more focus and learning opportunities
• Completing my traditional marriage now allows me to focus on future plannings, beginning with saving $30,000 of emergency funds.
• Finally being able to pay off remaining borrowings for university tuition fees.

The Bad

• Slightly overpaying for Lendlease GCREIT
• Not being able to invest at a desired pace or invest with a larger lump sum - commission fee is a bummer. I am a fan of gauging my dividends based off Yield At Cost instead of just Dividend Yield.
• Not managing to add positions to some shortlisted semiconductor stocks before they rallied. These stocks have not hit my target price to consider recycling my funds into such positions. Oh wells.
• Not having even bigger positions in the REITs to get more rights issues or to make the most of commission fees should I decide to sell.
• The plan to save up emergency funds as a priority goal will means there is little savings to channel towards the investing warchest unless I can substantially increase my savings by other means, be it further squeezing of expenses or side hustles.
• I also got to admit, for the whole year, my contents were not to scratch both in frequency and depth. I was also struggling to find the energy to write. 2019 while eventful, was also a stressful year. With the change in employment and traditional wedding completed, I think my creative energy should start to come back.
• I fell sick the last few days - hit with a fever, cough and sore throat. :( Stay well, guys!

The Ugly 
The only real smear on this year has been the total loss of share values for Alita Resources (short of a miracle). Pretty funny, when I was once sitting on it with 2-bagger paper profit.

Alongside dozens of other shareholders, we are looking into possible actions for both the possible breaches of duties and regulations by the ex-directors, as well as if it is possible to prevent the transference of shares to Liatam for nil consideration.

It is not just about possibly salvaging the situation, but the principle itself: Even if we can't salvage anything, not taking actions as a shareholder for wrongdoings (and I stress, WHEN YOU HAVE THE POWER TO DO SO) just sets a precedent for other crooks to try similar monkey business with shareholders' hard-earned money.

Well, that wraps up 2019.

Going forward into 2020
First, I hope my feeling of energy coming back is genuine and propel me to write better. I still owe myself the promise of doing a huge Alita Resources write-up. I think this will benefit in a lot of ways:

• Understanding investing into the lithium sector
• Understanding early signs of any red flags
• Understanding how the company fell apart
• Updating on possible salvaging actions

Next, I have decided to give making my blog shows the same between mobile and desktop format, as it seemed to look better on one of the financial blogger's site I visited recently. Mobile site, while looking cleaner, I also feel readers also miss out on other areas to explore.  Change of plans - it looks bad. Probs need to be optimised further.

On the investment forefront, I suspect there will be little (if any) adding to positions or recycling of funds. Off the top of my head, the most likely adding of positions will be to existing REIT positions when rights issue comes about. I am also keen to add position to some blue-chips as well. Having said all that, I hold this does not happen too soon - I need more funds! Hahaha.

Alright, with that, I would like to thank you all for reading, and wishing you a Happy New Year - May 2020 be a good or better year!

Portfolio Update 3Q2019 / Week 1 of October 2019

Hi guys, hope everyone's doing well! 3 months flies by pretty quickly when one's busy - now it's time for a quarterly portfolio update. I'm also going to cheat a little here and add in transaction done for first week of October 2019 as well.

	Income Portfolio
	Counters	Units	Market Price (SGD)	Overall Value based on market price (SGD)	Allocation
1	Cromwell European REIT	3000	0.772(1)	2316.42	46.19%
2	Prime US REIT	1000	1.296(2)	1296.26	25.85%
3	Lendlease GCREIT	1500	0.935	1402.5	27.97%
	Growth Portfolio
	Counters	Units	Market Price (SGD)	Overall Value based on market price (SGD)	Allocation
4	Alita Resources(3)	50000	0	0	0.00%
	Cash and other Assets
	Counters	Units	Market Price (SGD)	Overall Value based on market price (SGD)	Allocation
5	Warchest	1	0	0	0.00%
	Total SGD			4947.86	100.00%

Note 1:EUR/SGD of 1.51
Note 2: USD/SGD of 1.38 
Note 3: Alliance Mineral Assets Limited is now known as Alita Resources.

There are 3 major things done to my portfolio since the last quarterly update.

(1) Write-down of Alita Resources (SGX: 40F / ASX: A40)
Things went downhill ("Bald Hill" Geddit? geddit?) for my position here and it is currently in Voluntary Administration (VA). The worst case scenario here, which is quite a high chance of, is the stock losing all its value and I thought it will be most prudent to write down my investment here to 0 at this point.

I knew and accepted the risk I was getting myself into when I bought in - nevertheless I will recover from this and come back stronger and more knowledgeable as an investor from this.

Having said that, there is still chances of Alita Resources, no matter how remote, depending on how the VA plays out. If it comes back from the dead, the portfolio will once again reflect its market value.

(2) Addition of Lendlease Global Commercial REIT (SGX: JYEU)
I have been eyeing Lendlease Global Commercial REIT (LGC-REIT) ever since its planned listing came out on the news few months back.

Unfortunately I did not get any units from LGC-REIT's IPO. I foresaw this given the hot reception and my history of unsuccessful balloting for hot IPOs.

Nevertheless I decided to nibble a bit on the open market - paid a little more than I would have liked but this is fine as I am looking further ahead. It is considered part of my positioning to prepare for any rights issue. I am just keeping my fingers crossed it will not happen so soon while I rally my resources.

Given its current valuation and its gearing ratio, I believe management will be prudent and any injection of properties will likely need to be supplemented from rights issue or private placement.

It was also highlighted that Forever 21, a tenant of 313@Somerset has declared bankruptcy. I believe that in the grander scheme of things, this is nothing and people are blowing the matter out of proportions. Some other tenants will just take over in due time if they are gone.

(3) Addition of Prime US REIT
Got a small parcel (1000 units) from Prime's IPO earlier on. I wrote about this sometime back here.

My reasons here are two-fold. Aside from compounding my dividend gains, it is also to put myself in a position to subscribe to any rights issue as I also expect prudence from the management not to over-gear and supplement acquisition with rights issue and/or private placements. This is similar to my taking up of position in LGC-REIT in this sense.

Closing thoughts
My purchase of LGC-REIT is expected to be my last adding of position for the year, barring any rights issue relating to my REIT holdings.

My resources will continue to be tight until the end of next year and I hope any rights issue does not happen until we are at least a few months into 2020. Keeping my fingers crossed.

Lastly, I am working on a reflection relating to my investment in Alita Resources and my directions with investment moving forward but I will be taking my time before it is published. Probably a few weeks time?

Thanks for reading. You can also access to my Portfolio and past portfolio updates here.