Polar Star Realty Trust IPO: Add Some International Real Estate To Your Portfolio

| About: Polar Star (PSRT)
This article is now exclusive for PRO subscribers.

Summary

Nordic region offers AAA rating and is expected to see strong GDP growth.

Dividend yield will be around 6% depending on where shares price.

Portfolio of properties is largely tilted to government related tenants.

Real estate investment trusts, or REITs as they're commonly referred to, have been around for awhile on the open market. The companies own real estate and then pay out 90% of income to shareholders to qualify for this delegation. In a market where every company, whether it's restaurants, casinos, or phone companies, is applying for REIT status, a new international gem is hitting the open market via an IPO this week. Polar Star Realty Trust (BATS:PSRT) offers exposure to the Nordic region (Norway, Sweden, and Denmark) with a stellar portfolio of investment grade customers.

Polar Star will offer 43,478,261 shares at a price range of $10 to $13 this week. The company has 26 properties in its portfolio, with 11 location in Norway and 15 in Sweden. The company owns, leases, manages, and redevelops property for office, industrial, and commercial clients. Currently, the focus is on office (12 properties), and industrial (12 properties).

From the filing, the company believes the following are its strengths:

· Strategically located portfolio

· Primary investment focus on Nordic government and high credit quality corporate tenants

· Strong and stable target markets

· Favorable lease renewal and re-tenanting experience

· Experienced senior management team with broad capabilities, strong relationships with government agencies

· Broad industry contracts to drive acquisition opportunities

· Scalability of platform

The company's growth strategy is as follows:

· Capitalize on acquisition opportunities in the Nordic market

· Realize internal growth through active asset management

· Maintain relationships with high quality tenants

· Seek opportunities based on industry relationships deal flow

· Capitalize on opportunities to generate additional cash flow from our properties

Here are some of the statistics from the portfolio:

· 7.2 million leasable square feet

· 94.6% leased (as of 9/30)

· Average of 5.8 years remaining for tenants

· 232 total tenants for 105 buildings

· 5 properties with more than 500,000 square feet

Polar Star currently gets a total of $106.7 million in annual rent, with 71.8% of the total coming from Sweden and 28.2% coming from Norway. The company's largest property is The Garrison with annual rent of $15.0 million for an 835,925 square feet property.

The key to this investment is the strength of the Nordic region. The three countries (Norway, Sweden, Denmark) are three of only nine in the world to have a AAA rating from all three leading credit rating agencies. The two key countries in the portfolio, Norway and Sweden, also have GDP forecasts that exceed the Eurozone market.

 

2014

2015

Norway

2.0%

2.4%

Sweden

2.8%

3.1%

Eurozone

1.2%

1.7%

The big key is the company's focus on state owned and controlled enterprises as tenants. Through the first nine months of the year, 85.8% of the company's base rent from government related tenants. When adding in investment grade corporate customers, the base rent percentage jumps up to 92.8%.

There are a couple of key risks I found in the offering. One is upcoming expirations. Despite the average remaining lease being more than 5 years, the company has 2.4%, 10.8%, and 20.5% of leases expiring over the next three respective years. The other key risk also goes along with the strength of government related clients listed above. The company's largest tenant is PostNord, who occupies several of the buildings and makes up a whopping 34.5% of the company's base rent. PostNord is 60% owned by the Swedish government and 40% owned by the Danish government and appears to be a strong tenant. Still it would be nice to see this percentage come down with new acquisitions or build outs to reduce risk

Polar Star plans on paying out $0.04 in the current period and then initiating a quarterly payout of $0.17. This would equal out to $0.69 on an annual per share basis. At the mid-point of pricing range, this would represent a dividend yield of 6%. If shares price at the bottom of their range, the yield would be equal to 7%.

I'm not sure where this one will price as there is a full slate of IPOs hitting the market the next two weeks. I think this is a stock worth acquiring if it trades below $11.50. A 6% dividend yield from a portfolio of high grade properties provides a low risk way to invest in the Nordic region.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.