Far East Hospitality Trust IPO

Far East Hospitality seeks $528 million from Singapore IPO

The roadshow kicks off today, with cornerstone investors having signed up for more than half of the deal, and the price range indicating a yield of up to 6.8% for 2013.
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Most of Far East Hospitality's properties are in the upscale Orchard Road area
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<div style="text-align: left;"> Most of Far East Hospitality's properties are in the upscale Orchard Road area </div>

Far East Hospitality Trust, a hotel-focused real estate investment trust, is set to start the roadshow today for an initial public offering that could raise up to S$718 million ($578 million).

The trust 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.

Far East has strong brand name recognition in Singapore and the deal is likely to appeal to investors, thanks to its defensive characteristics, good yield and focus on the city-state’s growing tourism industry, a source said on Friday.

The deal has attracted 10 cornerstone investors, including Aberdeen Asset Management Asia, AIA Group and Hwang Investment Management. These investors will together take slightly more than half of the deal, which should ease its journey to market.

Far East’s deal comes a few weeks after Ascendas Hospitality Trust completed a S$459.3 million ($364 million) IPO in Singapore. But while Far East Hospitality will have a portfolio of seven hotels and four serviced residences all in Singapore at the time of listing, Ascendas Hospitality’s initial portfolio comprises 10 hotels, which are located across six cities in Australia, China and Japan.

If successful, Far East Hospitality’s offering will be the biggest IPO in Singapore this year, surpassing Ascendas Hospitality, according to Bloomberg data.

The base deal comprises 705.7 million stapled securities, which could raise up to $528 million, while the greenshoe option could add another 65.9 million units.

The deal offers a yield of 6.8% at the bottom of the range (S$0.86 a share) and 6.3% at the top (S$0.93), according to a preliminary prospectus lodged with the Monetary Authority of Singapore on Friday.

The closest pricing comparison is CDL Hospitality Trusts, a cross-border hotel Reit listed in Singapore, which is trading at a yield of about 6.2% 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.

Far East Hospitality’s cornerstone investors are together taking 376.3 million units, or 53.3% of the deal. It is offering 264 million units for the institutional tranche and 65.3 million units for the public portion.

With the sponsor tranche, which comprises 898.2 million units but is not part of the offering, the total number of stapled securities in issue immediately after the close of the offering will be 1.6 billion units.

The preliminary prospectus lists the cornerstone investors as: Aberdeen Asset Management Asia, AIA Group and its subsidiaries, APG Strategic Real Estate Pool, Havenport Asset Management, Hwang Investment Management, Indus Pacific Opportunities Master Fund and Indus Asia Pacific Master Fund, JF Asset Management, Lion Global Investors, Myriad Asset Management and NTUC Income Cooperative.

According to the current timetable, the roadshow runs from today (August 6) to August 14, and the pricing and registration for the deal are expected on August 16. The listing is scheduled for August 27.

The company plans to use part of the proceeds to pay the sponsor — a group of companies under Far East Organisation — the purchase price of the properties, to pay for the related acquisition costs of the properties, to pay for issue and debt-related costs, as well as for working capital.

Singapore Reits have been performing strongly this year. CDL Hospitality Trusts’ share price has climbed more than 38% since the start of the year, while Ascott Residence Trust has gained 31%, compared to a 15% gain on the benchmark Straits Times Index so far this year.

Ascendas Hospitality has moved little since its trading debut on July 27. It ended Friday’s trade down 0.6% at S$0.87, hovering near the IPO price of S$0.88.

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.

Since its establishment in 1960, Far East Organisation has developed more than 700 real estate projects in the residential, hospitality, commercial and industrial sectors in Singapore. It is responsible for one-fifth (42,000) of all private homes in Singapore, it says.

DBS, Goldman Sachs and HSBC are joint global coordinators, and joint bookrunners with OCBC.

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