Cambridge relaunches REIT IPO with higher yield

Cornerstone tranche halved to allow the industrial property trust to boost returns through increased leverage.
Cambridge Industrial Trust, which postponed its initial public offering in mid-June after failing to attract enough interest from institutional investors, is back in the market with a re-shaped deal that is bound to draw attention because of a premium yield.

The offering, which is fully underwritten by joint bookrunners ABN AMRO Rothschild and CLSA, will be done through an accelerated bookbuilding that will close at the end of London trading on Thursday, July 13.

The Singapore-based real estate investment trust which is backed by a group of 17 property owners and focuses on industrial and warehousing properties, is offering investors an annualised 7.5% yield for both 2006 and 2007, which is well above the average 5.5% for other Singapore REITs and also 250 basis points above the 10-year Singapore dollar swap rate.

ôAt that yield, they should find enough buyers,ö says one banker not connected with the deal.

Last time around Cambridge offered a yield of 6.5%, which was also at a premium to its peers at the time of launch, but as unit prices of other S-REITs declined with the broader market sell-down the yields increased sharply, leaving the listing candidate with virtually no edge over the competition when it came to valuations.

Since the deal was pulled on June 15, the Singapore Strait Times Index has rebounded 4.9%.

A couple of other REITs have also been completed in that time, including Singapore's (and Asia's) first hotel REIT, CDL Hospitality Trusts, which raised $223 million from an IPO last week. A week earlier, retail property focused Frasers Centrepoint Trust pocketed $169 million from its IPO.

CDL offered a 2006 yield of 6.4%, while Frasers was priced to yield an annualised 5.5%.

To achieve the higher yields now on the table, Cambridge has cut back the portion of the trust that will be reserved for cornerstone investors to 19.5% from 39.2% in favour of taking on more debt. The gearing level will rise to 38.5%, which is in line with the industry norm, from 22% under the initial structure.

Under the revamped offering, the number of units available to institutional and retail investors have been increased to 206.1 million from 176.5 million. The price will be the same at S$0.68, which means the IPO size will increase slightly to S$140.1 million ($89 million) from S$120 million.

The total amount of proceeds from the institutional, retail and cornerstone investors combined will fall to S$206.2 million ($131 million), however, from S$290.2 million ($180 million), as the vendors of the properties will now retain a combined 39% in the REIT compared with 31.2% under the original plan.

A source familiar with the offering says the first day of bookbuilding on Tuesday (July 11) had already yielded more orders than the total amount received last time and says the bookrunners were confident there would be sufficient demand this time around.

The REIT, which includes 27 industrial and warehouse properties with a total value of S$519 million ($325 million), is expected to benefit as a plan by the Singapore government to double annual manufacturing output by 2018 suggests demand for industrial and warehousing space will remain strong.

The shares are expected to start trading on July 25 after a retail offering that will be held next week.
¬ Haymarket Media Limited. All rights reserved.
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