CapitaMalls Malaysia Trust (CMMT) has become the second real estate investment trust (Reit) to price a Malaysia initial public offering in just over a week, and like Sunway Reit before it, the deal attracted robust interest from both domestic and international investors.
In light of the continued volatility in global equity markets, the buyers weren't about to pay just any price, however, and sources said price sensitivity in the order book forced the issuer to fix the institutional price at M$1 per unit -- the bottom of the indicated range -- for a total deal size of M$786.522 million ($244 million). Retail investors were able to buy the shares at a discounted price of M$0.98.
"A lot of investors felt more comfortable towards the bottom of the range and, for a Reit, every cent counts," one source said, referring to the fact that the lower the price, the higher the return for investors as implied by the dividend yield.
At the final price, however, sources said the new Reit, which operates three shopping malls in Malaysia, sported a "high quality" order book, comprising a mix of global funds focusing specifically on Reits or real estate; as well as general long-only mutual funds and pension funds. A couple of Malaysia's largest pension funds also supported the deal as cornerstone investors. More than 50 institutional investors were said to have participated in the deal.
The interest was underpinned by the defensive qualities of the Reit sector, as well as the fact that CMMT will be the second largest Reit in Malaysia, both in terms of asset size and liquidity, after Sunway Reit. And with Sunway's portfolio including hotels and office properties as well as shopping malls, CMMT will be the largest "pure-play" shopping mall Reit in Malaysia. Sunway Reit raised $459 million in its IPO and has a free-float of 61.7%, including the units bought by four cornerstone investor. CMMT will have a free-float of about 58% and a market capitalisation exceeding $400 million.
However, analysts also cited the good quality of the assets, the potential for capital gains and the track record of the sponsor. CMMT is being spun off from Singapore-listed CapitaMalls Asia, which is a subsidiary of CapitaLand, one of the largest and most respected real estate developers in Asia. That said, CapitaMalls Asia's share price performance hasn't been that great since it listed in November last year; after surging 27.4% to a record high of S$2.70 in the first 13 days after the debut, it has been edging gradually lower and is currently trading at S$2.07, or 2.4% below the IPO price.
In light of that, the management is likely hoping that the spin off the Malaysian assets will realise some hidden value. Indeed, in a press release issued by CMMT yesterday, the CEO of CapitaMalls Asia, Lim Beng Chee, noted that the pricing of CMMT was above the value at which the assets are held on CapitaMalls Asia's balance sheet, while at the same time offering a discount to the valuation of CMMT.
"This creates value for CapitaMalls Asia shareholders and provides a reasonable IPO discount for the new unitholders, hence creating a win-win outcome for all," Lim said. He added that the separate listing will also create a strategic platform to tap local capital, paving the way for the group to expand its franchise in Malaysia.
CMMT's portfolio has been valued at M$2.13 billion by AmTrustee.
The Reit sold 786.522 million units, accounting for 58.3% of the total number of outstanding units. The remaining 41.7% will be retained by CapitaMalls Asia, although if the 15% overallotment is exercised in full, its stake will fall to 33%.
Of the total number of units on offer, 91.4% went to institutional investors, including the two cornerstones -- the Employees Provident Fund of Malaysia and Great Eastern Life Assurance (Malaysia) which bought a combined 90 million units, or 11.4% of the deal. Malaysian retail investors bought the remaining 8.6%.
The units were offered at a price between M$1 and M$1.10. The final price, which was determined after the institutional bookbuild ended on Wednesday, will result in a distribution yield of 7.2% from May until December this year and a yield of 7.5% for calendar year 2011, with the latter being based on a projected distribution per unit of M$0.0745 in 2011.
The 2011 yield is in line with that offered by Sunway Reit, which means it pays a higher yield versus most of its peers in Singapore and Hong Kong, but a lower yield compared with the other Reits in Malaysia, which typically offer a yield above 8%. Most of those are small and quite illiquid though, and investors clearly felt a tighter yield was justified for CMMT.
While global equity markets have generally performed quite poorly over the past month, Asian Reits have fared better, underlining their defensive nature and suggesting that investors may have chosen to prioritise yield over growth. However, Sunway Reit fell 1.7% to M$0.885 when it started trading yesterday.
CMMT did market itself as a defensive play, but with upside potential. And yesterday, Sharon Lim, CEO of the CMMT manager (which is majority owned by CapitaMalls Asia), said that the fragmented ownership of shopping malls in Malaysia presents opportunities for growth through acquisition. In addition, CapitaMalls Asia is also planning to set up a Malaysia-focused retail property fund to identify and develop a pipeline of retail assets that can be added to CMMT's portfolio.
CIMB and J.P. Morgan were the global coordinators for the IPO with Maybank joining them as a joint bookrunner for the institutional offering. CIMB and Maybank are also acting as joint principal advisers to the trust.