The placement - which will account for up to 95.2% of the total targeted amount - saw strong demand from investors who were keen to tap into the REIT following its S$877.7 million ($556 million) high profile and yield accretive acquisition of a 40% stake in Raffle City. The price was fixed at S$2.30 - close to the top end of the S$2.23 to S$2.32 indicated range, according to a source familiar with the transaction.
Given that there was virtually no price sensitivity in the book, joint bookrunners DBS and UBS could have priced the offer at the top end but the management was said to have decided to leave a few cents extra on the table. Its sponsor, CapitaLand, which is also the manager of the REIT through an indirect wholly-owned subsidiary, is expected to buy a chunk of the deal.
The rest of the units will be sold to Singapore retail investors at the same price through an ATM offering that will be open for five hours today (August 30). The final number of units to be sold and the split between institutions and retail investors had yet to be determined late last night. Sources also said it was also still uncertain whether sponsor CapitaLand, which holds 34% of the REIT, would take up its full allocation to keep its stake unchanged or allow more units to be sold to institutional investors.
The offer followed a similar sale of S$803.2 million ($508 million) worth of units by CapitaCommercial Trust, its joint venture partner in the Raffles City acquisition, two weeks ago. Contrary to CCT however, CapitaMall Trust is able to fund the acquisition through internal resources and this fundraising exercise was a pure capital structure initiative aimed at boosting its financial muscle ahead of potential future acquisitions - although, timed to benefit from the goodwill related to the Raffles City investment.
CapitaMall Trust, which currently has nine retail malls in its portfolio, will see its total assets increase to S$4.3 billion ($2.7 billion) from S$3.5 billion as a result of the acquisition, which will bring it close to the managementÆs goal of reaching a total asset size between S$5 billion and S$6 billion by 2008. Since Raffles City is an integrated shopping complex which includes two hotels, office space and a convention centre, the investment will also help broaden its asset base.
ôThe acquisition of Raffles City, a quality and prime asset, will provide economies of scale and income diversification for CapitaMall Trust's existing portfolio,ö MoodyÆs said in a recent note to affirm the trustÆs A2 rating. ôThe joint ownership arrangement with CCT will allow CapitaMall Trust to leverage CCTÆs office management expertise, while the risk associated with exposure to a hotel and convention centre is largely mitigated by the underlying long-term lease with RC hotels. The operation risk of the acquisition is therefore low,ö MoodyÆs analyst Jeffrey Lam said.
CapitaMall offered to sell between 164.22 million and 170.85 million new units to institutional accounts, with a further 8.62 million to 8.97 million due to be offered to retail investors. The final price equals a discount of 2.0% to MondayÆs volume weighted average price of S$2.3665.
However, the new units were sold without the right to the dividend that will be paid for the period between July 1 and August 31, meaning the actual discount was a slightly narrower, and quite aggressive, 1.7%. The units were offered at a price ranging from S$2.23 to S$2.32, which equated an adjusted discount of 1.2% to 5% to MondayÆs VWAP.
In a statement, CapitaMall Trust said the dividend for the first two months of the third quarter will be at least 1.87 Singapore cents per unit but may total as much as 1.95 cents.
Contrary to CCTÆs unit price which fell 9% in the seven sessions before the launch of the its offer, CMTÆs price has risen 16% from its lows at the end of June when the size of the planned unit sale was first announced. The REIT closed at S$2.36 on Monday and was suspended from trading yesterday.
Despite the pre-offer gains, the book was about 2.5 times oversubscribed by both new and existing investors, according to the source. The vast majority of the orders were said to have come from Asia, but the book also included good quality orders from Europe as well as some from the US even though the timing of the offer meant the latter didnÆt have much time to look at it.
One observer notes that many investors jumped at the opportunity to buy a sizeable chunk of the otherwise quite illiquid REIT and says the scarcity of equity offerings over the past month also helped enhance the appetite for the sale.
ôSingapore REITs are in favour right now and CapitaMall Trust is also a relatively defensive name if markets start to head the other way. It is a good company with a good management that appeals to Singapore pension funds,ö the observer says.
And while it is among the more expensive REITs in Singapore after CCT and Mapletree û it trades at a 2006 dividend yield of about 4.9% and a 2007 yield of 5% - CMT is still seen to be attractive from a total return perspective.
ôIt is currently trading at a 14%-15% premium to NAV compared with a historical premium of 30%-40% so many investors view this as a good entry point,ö the observer adds.
Among future asset growth opportunities, CapitaMall has said it is looking to buy a 20% stake in a proposed China Retail REIT through a pre-IPO investment. China Retail REIT, which is expected to hold seven Mainland China-based retail assets worth more than S$800 million, will also be sponsored by CapitaLand. It is planning to list in Singapore by the end of this year.
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