Far East Hospitality Trust, a hotel-focused real estate investment trust, is set to raise S$656 million ($527 million) from its initial public offering in Singapore after pricing at the top of the indicative range.
It is now on course to become the biggest IPO in Singapore this year, surpassing Ascendas Hospitality’s $364 million offering last month, according to Bloomberg data. Similarly, amid a general appetite for yield on the back of uncertain market conditions, bankers started the pre-marketing last week of IGB Reit, a retail real estate investment trust that is aiming to raise M$837.5 million ($270 million) from its Malaysian IPO.
Far East is sponsored by Far East Organisation, which is owned by the Ng family and is the biggest private property developer in Singapore. The same family also owns the Hong Kong-based Sino Group.
The trust is selling 705.7 million stapled securities for S$0.93 per unit, representing a yield of 6.3% for 2013, a source said yesterday. The deal was marketed at a price between S$0.86 and S$0.93, which offered a yield between 6.8% and 6.3%.
The deal comes with a greenshoe option of an additional 65.9 million units, which could increase the deal size to S$718 million.
Each stapled security consists of one unit in Far East Hospitality Real Estate Investment Trust and one unit in Far East Hospitality Business Trust, according to a preliminary prospectus lodged with the Monetary Authority of Singapore earlier this month.
Paving the way for a successful deal, Far East had already signed up 10 cornerstone investors, including Aberdeen Asset Management Asia, AIA Group and Hwang Investment Management. The cornerstone investors are together taking 376.3 million units, or 53.3% of the deal.
The company offered 264 million units through the institutional tranche and 65.3 million units through the public portion. After the registration of the prospectus today, the public offering period will start from Friday and close on August 23, with the listing scheduled for August 27.
The deal received strong interest from investors across the board, with demand coming from long-only investors, property funds, hedge funds, corporate accounts and private banks, the source said. The institutional tranche was more than 25 times covered, and there were more than 200 accounts in the book, the person noted.
Far East’s strong brand name recognition in Singapore, as well as its defensive characteristics, good yield and focus on the city-state’s growing tourism industry are likely attractions for investors, another source has said.
The closest pricing comparison is CDL Hospitality Trusts, a cross-border hotel Reit listed in Singapore, which is trading at a yield of about 6.4% for 2013, according to Bloomberg data.
Investors are also likely to look at Ascendas Hospitality, which priced its IPO at a distribution yield of 7.9% for the fiscal year to March 2013. Its stock has moved little since its trading debut on July 27, though. It ended yesterday’s trade down 0.6% at S$0.86, remaining near the IPO price of S$0.88.
At the time of listing, Far East will have a portfolio of seven hotels and four serviced residences all in Singapore, while Ascendas Hospitality’s initial portfolio comprised 10 hotels, which are located across six cities in Australia, China and Japan.
The company plans to use part of the proceeds to pay the sponsor — a group of companies under Far East Organisation — for the properties it has purchased, including various other costs, and for working capital.
Far East Organisation owns and operates the biggest corporate leasing and hospitality portfolio in Singapore, including eight hotels and 11 serviced residences with more than 1,200 apartments, according to its website. It has two listed subsidiaries — Orchard Parade Holdings, a hotel and property group, and Yeo Hiap Seng, a home-grown food and beverage company.