Mapletree's second Reit IPO captures hunger for yield

Mapletree Industrial Trust (MIT) will become only the second real estate investment trust (Reit) to list in Singapore in almost three years after an initial public offering that attracted a huge following from institutional investors. This enabled the issuer to fix the price at the top end of the range for a total deal size of S$887.6 million ($679 million).

It will also be the second Reit from the Mapletree group, a Singapore-based real estate investment and management company, following Mapletree Logistics Trust, which listed in July 2005. MIT invests in income-yielding industrial real estate, including business park buildings, flatted factories, stack-up and ramp-up buildings, and hi-tech industrial buildings, but not in properties that are mainly used for logistics; this will remain the prerogative of Mapletree Logistics Trust.

With the potential for further quantitative easing again a focus for global investors and interest rates at record lows, the deal comes at an almost perfect time for capturing the appetite for yield. And the promise of a 7.6% dividend yield from a Reit backed by Temasek Holdings was hard to resist for most investors.

Excluding the 35.2% of the deal which was earmarked for six cornerstone investors, MIT attracted about $13 billion of demand from more than 350 institutional accounts, sources said. This means the deal was roughly 30 times covered, sources said.

MIT is selling 594.9 million units, or 40.7% of the trust, to investors other than the cornerstones. Of that, 82.2% is going to institutional investors, while 17.8% is set aside for Singapore retail investors through a separate offering that will be open from October 13-18. At the time of listing the cornerstones will own 22%, while Mapletree Investments as the sponsor will retain a 37.3% stake. The public investment tranche will increase to 47% and Mapletree Investments’ stake will fall to 31% if the 15.4% greenshoe of secondary shares is exercised in full. Mapletree Investments is wholly owned by Temasek, which in turn is owned by the Singapore government.

The units were offered in a range between S$0.88 and S$0.93. The final price of S$0.93 translates into a dividend yield of 7.6% for fiscal 2011, which ends on March 2011, and 8.0% for fiscal 2012. This compares with a forward yield of 6.9% for Mapletree Logistics Trust and 6.4% for Ascendas Reit (A-Reit). The latter is also focusing in industrial properties.

But even more importantly for attracting such a large level of demand, the yield on offer far exceeded the returns investors can get in the “risk free” government bond market. Five-year notes issued by the Singapore government currently yield a mere 0.8% to 0.9% per year, and even for a 20-year maturity, the yield is only about 2.8%. And with MIT offering almost five percentage points on top of that, together with strong government links through Temasek, it is easy to see why the deal was so popular.

And MIT didn’t sell itself short by any means. In fact, the final price values the trust at a premium of about 8% versus net asset value, which is close to the 10% premium that is the maximum allowed under the Singapore Reit listing rules. It is also well above most other Reit IPOs in Singapore which have tended to sell at valuations either around NAV or at a slight discount.

The cornerstones included real estate specialists as well as life insurance companies – both of which tend to seek out high-yielding instruments and also invest for the long-term. Hence, their presence would have given other funds the confidence to come into the transaction as well. The cornerstones were APG Tower Residential Pool, AIA Group, Henderson Global Investors, real estate investors Columbia Wanger, DE Shaw and Prudential.

The deal was arranged by Citi, DBS, Goldman Sachs and Standard Chartered.