European investors drove the spread on Ascendas real estate investment trust's first securitization offer to a rock-bottom 33bp on Friday. The five-year €144 million commercial mortgage-backed securitization (CMBS) priced just one point higher than CapitaMall's US dollar offer earlier in the week.
Like its better-known counterpart A-Reit is recognized by investors as a solid, professionally run company, but the industrial assets it owns are not as attractive as the retail properties owned by CapitaMall. Indeed, this is the first attempt by a Singapore originator to sell bonds backed by industrial properties and also the first securitization from A-Reit, offered under its medium-term note programme through a special-purpose vehicle called Emerald Assets.
Given the novelty of both the issuer and the assets, lead managers JPMorgan and OCBC, spent almost two weeks in Europe talking to investors. That effort clearly paid off - about 70% of the investors that bought the deal came from Europe and it was their appetite that drove the price down.
It could have gone even further according to a banker close to the deal. Even at 33bp (over Euribor) the bonds were over-subscribed by 2.5 times. CapitaMall and A-Reit demonstrate how far the spread between a typical European or US CMBS and an Asian one has narrowed since the last Singapore CMBS deal.
That sale from CapitaLand was priced about 18bp over similar European offers, but A-Reit's deal, rated triple-A by all three rating agencies, is around 10bp over the prevailing European rate. It helps that A-Reit was priced in euro - investors in Europe are particularly hungry for triple-A paper at the moment.
But the tight pricing of both recent Reit deals also shows that investors are becoming increasingly comfortable with these Singapore issuers. And as both Reits have MTN programmes in place it is expected that they will be regular issuers in the future.
A-Reit will probably tap the market again in three to six months. The proceeds from this first deal will be used to pay off the bank financing used to set up the Reit but future deals will help buy new properties to put into the trust. Allen & Gledhill acted as transaction counsel and WongPartnership advised the underwriters.
Hong Kong may be set to rival Singapore soon with the establishment of the Housing Authority's Reit, which placed a job advert in the South China Morning Post last week - the first sure sign that the trust is really going to happen.