Frasers Centrepoint tests demand for S-Reit IPO

The group intends to inject the bulk of the Australian industrial properties it acquired from the takeover of Australand into a new real estate investment trust in Singapore.

Frasers Centrepoint has started premarketing for a new listed real estate investment trust in Singapore backed by the Australian logistic and industrial properties it acquired with the takeover of Australand Property Group in 2014.

Syndicate bankers said the initial public offering next month of Frasers Logistics & Industrial Trust could raise around S$850 million ($616 million). If successful, it could also pave the way for the listing of Frasers Centrepoint's other Australian assets.  

After just one new issue last year, Singapore’s IPO market appears to have reopened for business with Reit specialists leading the way after Manulife US Reit this month priced the city’s first deal of the year at the top of price guidance.

The trust's share price fell by 4.8% on its debut last Friday though, ending flat on its second trading day on Monday. So investment bankers will have to tread carefully if they are to get the deal done. 

The dip in market sentiment followed indications from policymakers that the Federal Reserve might raise US interest rates in June if the country reports stronger second-quarter growth and better inflation and employment figures.

A rate hike in the US will make Reit assets comparatively more expensive against other income-generating products. It will also increase borrowing costs for Reits, which generally relies on debt financing for acquisitions.

Business and valuation

The initial portfolio of Frasers Logistics & Industrial Trust will comprise 51 Australian properties including factories, car parks, and warehouses. The bulk of the properties are located in the states of Victoria, New South Wales, and Queensland.

These properties have a combined gross leasable area (GLA) of 1.16 million square metres and total appraised value of A$1.58 billion ($1.14 billion), according to a company research report.

Upon listing, the trust will be given call options to purchase three other properties from its sponsor Frasers Centerpoint, which could potentially increase the total GLA by 6% to 1.23 million. The options are exercisable by the end of this year.

Syndicate bankers have given a fair value range of A$1.3 billion to A$1.39 billion for the new Reit, which implies a price-to-book multiple of 1.13 times to 1.2 times and a dividend yield of 6.6% to 7.0% for the 2017 financial year.

One banker familiar with the situation said the Reit could be valued at around S$1.2 billion after factoring in an IPO discount, which would translate to an implied dividend yield of 8.2% for next year.

Frasers Centrepoint will retain a 22.5% interest in Frasers Logistics & Industrial Trust once it is listed.

Singapore-listed industrial Reits have a fairly wide range of dividend yields. Most of the bigger companies, such as Mapletree Industrial Trust and Mapletree Logistics Trust, trade at sub-7.5% yields while smaller caps trade at above 8.5%.

With an estimated market capitalisation of S$1.2 billion, Frasers Logistics & Industrial Trust will be a mid-cap company in the S-Reit space.

Selling points

Instead of focusing on the broader Reit market, syndicate analysts emphasised a number of key metrics that differentiates the trust from other S-Reits.

One of the selling points is the Reit’s land ownership structure. According to a company research report, about 60% of the properties sit on freehold land while the rest of the leasehold properties are held with a weighted average land expiry of 6.9 years, the highest among all industrial S-Reits.

In addition, the properties have a high average occupancy rate of 98.3% and are relatively new with an average age of 6.1 years.

Syndicate analysts said the Reit’s relatively low gearing of 29.3% (34.5% after exercising call options in full) will offer room for future acquisition.

Indicative timetable

The deal's Reg S only structure means the focus will largely be in Asia. Premarketing sessions will be conducted until early June in Singapore, Hong Kong, Sydney and Kuala Lumpur, according to a termsheet seen by FinanceAsia.

According to the tentative schedule, the Reit will be opened for institutional subscription between June 6 and June 16, followed by a Singapore public offering from June 15 to June 20.

Frasers Logistics & Industrial Trust is tentatively scheduled to start trading in Singapore on June 22 or June 23.

DBS and Citigroup are joint global coordinators of the IPO and are also joint bookrunners with Morgan StanleyOCBC and United Overseas Bank.

Partial relisting of Australand

The majority of Frasers Logistics & Industrial Trust’s assets were acquired by Frasers Centrepoint through its A$2.6 billion takeover of Australand, the then largest property group in Australia.

Thai tycoon Charoen Sirivadhanabhakdi, the controlling shareholder of Frasers Centrepoint, outbid Australian property developer Stockland in the battle for Australand, which owned residential, industrial and commercial properties primarily in Australia.

Frasers Centrepoint will continue to own the residential and commercial properties in Australia and might follow the same route to list these assets if the industrial Reit listing proves successful, according to the banker familiar with the situation.

Frasers Logistics & Industrial Trust is set to be the fourth S-Reit under the Frasers brand. The other three companies are Frasers Centrepoint Trust, Frasers Commercial Trust, and Frasers Hospitality Trust.

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