Prime US Reit acquiring two office properties for $330 million

Sorrento Towers comprises two freehold seven-storey Class A office towers and will be acquired at its valuation price of US$146 million.
Sorrento Towers comprises two freehold seven-storey Class A office towers and will be acquired at its valuation price of US$146 million.PHOTO: SORRENTO TOWERS/WEBSITE

SINGAPORE (THE BUSINESS TIMES) - The manager of Prime US Reit has agreed to acquire two properties in the United States for US$245.5 million (S$330.5 million), with the purchase to be partially funded through a private placement exercise to raise gross proceeds of at least US$80 million.

Comprising two freehold seven-storey Class A office towers, Sorrento Towers sits above a three-level podium garage at 5355 and 5375 Mira Sorrento Place, San Diego, California, and will be acquired by the real estate investment trust (Reit) at its valuation price of US$146 million.

It was built in 1989 with its last refurbishment completed in 2020, and comes with a net leasable area (NLA) of 296,327 sq ft as well as 1,052 parking lot spaces at 3.9 lots per 1,000 sq ft.

As at March 31, 2021, the property is 95.6 per cent occupied by 11 tenants and has a weighted average lease expiry (WALE) by NLA of 6.6 years.

The other acquisition target is One Town Center, a freehold 10-storey Class A office tower with a five-storey attached parking garage in Boca Raton, Florida. The property will be sold to Prime US Reit at US$99.5 million, or at a 2.5 per cent discount to its US$102 million valuation, as at June 8, 2021.

Built in 1991, One Town Center's last refurbishment was also completed in 2020. Its parking garage component features 435 lots in addition to 274 surface parking lots. Together they span 3.7 parking spaces per 1,000 sq ft. As at March 31, 2021, the property has a WALE of 6.2 years by NLA of 191,294 sq ft, and its occupancy stands at 94.7 per cent with a total of 14 tenants.

Prime US Reit's manager intends to partially finance its intended acquisition of these two assets through the launch of a private placement exercise that will raise no less than US$80 million.

In a separate announcement on the same day, the manager gave an indicative issue price range between 79.7 US cents and 82.2 US cents. This represents a discount of between 5.8 per cent and 8.6 per cent to the volume-weighted average price (VWAP) of trades in Prime US Reit's units done on Wednesday, up to the time the placement agreement was signed.

Offer of the new units under the placement will be made to institution and other investors, and these units will only be offered and sold outside of the US in offshore transactions, in compliance with Regulation S under the Securities Act.

Assuming 98.9 million new units are issued at 3.395 US cents per unit - the mid-point of the indicative price range - to raise gross proceeds of US$80 million, an estimated US$78.1 million, or 97.6 per cent, of the gross proceeds will go to partially fund the acquisition of the two properties.

The remaining US$1.9 million, or 2.4 per cent, of gross proceeds will be used to pay the estimated fees and expenses incurred from the fund-raising exercise.

For illustrative purposes, the manager estimates Prime US Reit's FY2020 distribution per unit would have been 7.11 US cents instead of 6.94 US cents had the acquisitions been completed on Jan 1, 2020. Net asset value of the Reit would have been 0.85 US cent post the acquisition instead of 0.86 cent on the assumed enlarged unit base.

The Reit manager intends to finance the remaining cost of the US$245.5 million asset purchase by using two new loans secured by the acquisitions, on top of an existing credit facility with an aggregate amount of US$169.6 million.

Units of Prime US Reit closed one US cent, or 1.2 per cent, higher at 88 US cents on Wednesday, before its manager called for a trading halt on Thursday morning.