Germany’s I-Reit completed the first leg of its reconfigured S$369 million ($295.98 million) Singapore initial public offering on Tuesday, allocating fewer shares to institutional investors than originally planned to accommodate an investment by local tycoon Lim Chap Huat.
The institutional tranche was cutback sharply after the strategic Singaporean investor was included during the book-building process, pushing the schedule back by five days as the real estate investment trust re-lodged the deal with the Monetary Authority of Singapore.
Under the new structure, the placement tranche comprises 156.49 million units at a fixed price of S$0.88 per unit. Institutional investors were allocated S$67.57 million or 76.79 million units while Lim got 79.7 million units.
Lim, who ranks as one of Forbes 50 wealthiest Singaporeans, is the founder of Soilbuild, which already has a listed S-Reit, Soilbuild Business Space Reit.
He will now own 19% of I-Reit’s issued share capital and the same percentage of the Reit manager. A second strategic investor Shanghai Summit Holdings, which is owned by Chinese real estate investor Tong Jianquan, will own a further 65% of the Reit manager and 60% of the company’s issued share capital.
The remaining 16% of the Reit manager will stay in the hands of sponsor Sella Holdings, which is owned by Israeli real estate investor, Itzak Sella. Sella Holdings did not subscribe to the IPO.
Both Shanghai Summit and Lim will be subject to the same lock-up conditions after the listing: 100% for the first 180 days and 50% for the second 180 days.
I-Reit is now scheduled to make its debut on the Singapore Stock Exchange on August 13 following a domestic retail offering, which runs from August 5 to August 11. Retail investors are being offered 11.36 million units and, together with the institutional tranche, will account for 40% of I-Reit’s issued share capital.
Lead managers Barclays and DBS also have a greenshoe of 11.36 units.
A niche sell
Bankers contacted by FinanceAsia declined to reveal either the deal’s oversubscription ratio or the number of institutional accounts that participated in the deal. However, one specialist Reit investor who did not invest in the IPO, told FinanceAsia that the book was only just covered, with fairly full allocations to those who did participate.
If so, this would not be that surprising. Recent S-Reit deals have not performed particularly well and I-Reit’s German asset base means many Asian funds would not have been allowed to buy it.
As a result, sources close to the deal said the order book was highly concentrated between a mix of Asian long-only funds, high net-worth investors and some Europe-focused funds. “This transaction is going to have pretty limited secondary market liquidity,” one banker said.
I-Reit’s status as the first pure-play European Reit to list in Singapore makes it unique but also a more difficult proposition to sell.
The deal offers a big yield kicker relative to benchmark German Bunds. Based on a 2015 prospective dividend yield of 8%, I-Reit is currently offering a yield pick up of 683bp above 10-year Bunds. Since I-Reit launched its formal marketing process on July 17, 10-year Bunds touched an all-time record low of 1.109% at the end of July before rising back to 1.17% on Tuesday.
Some bond analysts say Bund yields may yet dip below the 1% threshold by the end of the year if the European Central Bank enters a new round of monetary easing to combat deflation. This represents a complete turnaround from consensus expectations at the beginning of 2014 when 10-year Bunds were yielding 1.97% and analysts expected yields to rise over the course of the year.
I-Reit closed the institutional portion of its IPO on Friday at a time when Asian equities showed signs of selling pressure following weak economic data out of China and the US. This hampered the trading debut of the most recent Reit, Accordia Golf Trust, which has fallen roughly 14% since listing on August 1 and is now yielding 10.4% on a 2015 basis.
Frasers Hospitality Trust, which listed in mid-July, has also seen its post IPO gains wiped out.
I-Reit’s direct comparables have been fairly flat since formal marketing was launched. S-Reits, CapitaCommercial Trust and OUE Trust are still respectively yielding around 5% and 6.8%, while German Reits such as Alstria and Hamborner are yielding around 5.2% and 5.5%.