A-Reit prices new equity deal

A-Reit returns to the equity markets for a second time in 2005.

Singapore-listed A-Reit priced a 112.67 million unit deal yesterday (September 20), potentially raising S$240 million ($142.66 million) from the Citigroup-led transaction.

The equity issue has three components, of which the main one is a one-for-20 preference share deal for existing investors. This comprises a 64.5 million unit offering and will run from Friday through to the following Thursday, with allocations made public on October 3.

Alongside the preference share tranche, there has been a 37.3 million unit placement to institutions, which took place after yesterday's close in Singapore. Finally, 10.8 million units have been issued to Techview, the vehicle through which one of the group's two major shareholders - Ascendas - retains its 19.9% stake.

All three tranches of the deal have been priced at S$2.13 per unit, the mid point of a S$2.10 to S$2.15 range. This represented a 2.74% discount to the stock's S$2.19 spot close on Tuesday, or a 1.39% discount on a dividend adjusted basis.

The order book for the institutional tranche is said to have closed just over four times covered with participation by about 38 accounts. About 59% of total demand came from Asia, 23% from Australia and 18% from Europe.

The deal was executed against a positive backdrop for the Reit sector, with the IPO for Prime Reit rising 7% on its debut yesterday. Year-to-date, A-Reit is up 28.07% and investors that participated in its $125 million placement back in late February have made 20.1% in capital appreciation since then.

Analysts believe the sector will continue to perform well as the Singapore Reits continue to make yield accretive acquisitions. However, many caution that investor returns going forwards are unlikely to match those of recent years.

A-Reit's new equity deal is being used to fund the acquisition of 14 properties of which seven derive from the portfolio of government-owned Ascendas. Analysts estimate the portfolio has a net average yield of around 7.7% and on completion of the equity issue, A-Reit will improve its dividend per unit from S$11.18 to S$11.37.

It is currently yielding about 5.4%, putting it at the top end of the Singapore-listed sector.

Some analysts also believe A-Reit will be further buoyed by the renewed possibility of a government privatization. Currently, the group's major shareholder is Ascendas, which is in turn owned by the Jurong Town Corporation (JTC) and ultimately the Ministry of Trade and Industry. Ascendas also acts as A-Reit's manager, owning 60% of a JV with Australia's Macquarie Goodman.

Analysts have often speculated how A-Reit will fit into Macquarie's rapidly expanding Asian property empire. Some now believe it will try to buy out Ascendas should the government decide to privatize it. This in turn might also yield a number of potential acquisitions for the Reit since Ascendas has an asset base of roughly S$2 billion and JTC roughly S$5 billion.

A-Reit itself will now have an asset base of S$2.6 billion.

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