Another industrial Reit completes Singapore IPO

The MacarthurCook-sponsored trust raises $195 million and sets price above the mid-point for a 6.2% yield.
MacarthurCook Industrial Reit (MI-Reit) has priced its initial public offering just above the mid-point of the range at S$1.20 per unit after attracting modest demand from institutional investors. The pricing gives a total deal size of S$296.8 million ($195 million).

The Singapore-based real estate investment trust, which will invest in properties used for industrial purposes including manufacturing, warehousing and distribution, had been offering the units at a price ranging from S$1 to S$1.30.

The institutional tranche, which accounted for 97% of the offering was two to three times covered, according to a source. It attracted orders from close to 50 investors in Asia and Europe, including Singapore, Hong Kong, the United Kingdom, Holland and Switzerland. The book also included some US and Australian investors.

The final price translates into a distribution yield of roughly 6.2% per unit for the current fiscal year to March 2008, which is based on a projected a dividend of 7.41 Singapore cents per unit. The dividend for fiscal 2009 is estimated at 7.59 cents, which will give a yield of about 6.3% based on the offering price. MI-Reit has committed to pay 100% of its distributable income as dividend in fiscal 2008 and at least 90% thereafter, according to the listing document.

The yield is quite attractive, compared with some of the other industrial Reits in Singapore, says an observer close to the deal. Ascendas Reit and Mapletree Logistics Trust both trade at 2007 yields below 6%, although Cambridge Industrial Trust currently offers a higher yield of 6.7%-6.8%, he adds.

MI-Reit consists of 12 industrial properties in Singapore, with a total appraised value of S$316.2 million ($208 million), approximately S$23.2 million of forecast rental income in fiscal 2008 and a combined lettable area of 194,980 square metres. It is being set up by MacarthurCook Ltd., which is an Australia-listed specialist property manager with over A$1 billion ($825 million) worth of real estate, real estate securities and mortgages under management, but the initial properties will come from 12 separate vendors.

MacarthurCook and six of these vendors will hold a combined 5% of the Reit following the IPO, but the Reit will not be controlled by any developer or investment company focused on industrial properties, as is typically the case with other Singapore Reits. This independence, the manager believes, should allow MI-Reit to be viewed more positively when it approaches property companies for potential acquisitions.

MacarthurCook will, however, retain control of the day-to-day operations of the trust since it owns 92.5% of MacarthurCook Investment Managers (Asia), which will be the manager of the MI-Reit. The remainder is held by United Engineers Development.

ôThe disadvantage (of not having a property company as a sponsor) is that there isnÆt a pipeline of properties available to be injected for future growth, but the advantage is that there is no conflict of interests and the management can go out and select properties that are best for the Reit,ö the observer says.

He also notes that MI-Reit has a low gearing ratio of only 8.6%, which gives the management more room to borrow money in order to expand its portfolio in the future.

The aim is to pursue acquisition opportunities both in Singapore and across Asia that fits in with the ReitÆs principal investment objective. In the future as much as 60% of the portfolio assets may be located outside Singapore, according to the listing document. The manager intends to make up to S$500 million ($330 million) of new investments every year, focusing primarily on Singapore, China, Hong Kong, Malaysia, Japan and India, it says.

Growth will also come from rental increases. All of MI-Reits current leases have a built-in rental escalation in the form of fixed percentage increases ranging from 1.5% to 8%, starting from the first year of the leases. In the four years after the listing, there will be a weighted average rental increase of 3.4% across the tenancies in the properties. All the 12 properties will be leased back to their respective vendors after they have been acquired by MI-REIT, which will ensure 100% occupancy after the listing.

The REIT offered 247.33 million units, of which 239.83 million were allocated to institutional investors and 7.5 million, or 3% of the total, will go to Singapore retail investors. HSBC and UBS were joint bookrunners on the deal.

Separate from the offering, MacarthurCook subscribed to 6 million units, giving it a 2.3% stake in the Reit, and the property vendors bought 7.1 million units, or a 2.7% stake. These purchases were both done at the offering price.

The total proceeds from the global offering and the sale of units to MacarthurCook and the property vendors are estimated at approximately S$312.5 million. This, together with a S$27.4 million draw-down from a credit facility will be used primarily to pay for the acquisition of the 12 properties and costs related to the acquisition and the offering. A small portion will go towards working capital requirements.

The trading debut is scheduled for April 19.
¬ Haymarket Media Limited. All rights reserved.
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