Mapletree Greater China Trust to fix IPO price at the top

The trust raises $1.3 billion from the deal, which is heavily subscribed by institutional investors and ranks as the largest Reit IPO in Singapore ever.
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Festival Walk, which accounts for three-quarters of MGCCT's property value
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<div style="text-align: left;"> Festival Walk, which accounts for three-quarters of MGCCT's property value </div>

Mapletree Greater China Commercial Trust (MGCCT) is expected to price its initial public offering at the top of the range today after attracting huge interest from institutional investors, sources say. This will allow it to raise S$1.61 billion ($1.3 billion) from what will be the largest IPO by a real estate investment trust (Reit) in Singapore ever.

The Reit, which has two commercial assets in its initial portfolio, including the popular Festival Walk shopping centre in Hong Kong, is selling 65% to public investors, while 35% will be bought by entities owned by the Mapletree Group. However, the deal comes with a greenshoe option of all secondary shares that could change that ratio to 68% versus 32%.

The deal was well oversubscribed already on the first day and continued to build from there, attracting a wide range of investors — global long-only funds, real estate specialists, institutions based in Malaysia and Singapore, hedge funds, private banking clients and corporate investors all wanted a piece of the pie.

The deal wasn’t open to onshore US investors, but many of them still came into the deal through overseas entities.

When the subscription closed early yesterday morning Hong Kong time, the portion of the deal available to institutional investors other than the cornerstones was more than 30 times covered and had attracted between 300 and 400 investors, according to sources.

That portion accounts for just 29.6% of the base deal, or about S$550 million ($444 million) including the greenshoe, which means there aren’t that many units to go around. Investors obviously knew this and there was quite a bit of inflation in the order book towards the end. The sources estimated that many investors will end up with no units at all.

The rest of the base offering will go to the 11 cornerstones (55.1%), which get a guaranteed allocation, and to retail investors and parties associated with the Mapletree group (15.3%). MGCCT was offering 1.73 billion units to public investors and cornerstones through the base deal, and may sell an additional 79.851 million units through the greenshoe. If the latter is exercised in full, it will boost the total proceeds to S$1.68 billion ($1.4 billion).

MGCCT is expected to fix the price at S$0.93 per unit, after marketing the deal at a price between S$0.88 and S$0.93. This comes as no surprise since the bookrunners were telling investors at the end of last week that the offering was likely to be priced at the top. The great majority of the orders were already at strike and on the back of that guidance, most of the rest of the investors removed their price limits too.

Hence, even though global stock markets have taken a beating since the US trading session on Monday and the Singapore market fell 1.1% yesterday, there is really no reason for MGCCT to price off the top. Particularly since many investors buy Reits for the yield and therefore tend to hold on to them for a bit.

At the final price of S$0.93, MGCCT is offering an implied yield of 5.6% for the fiscal year to March 2014, and 6.1% for the 12 months to March 2015. The projected increase in the dividend yield for the second year is based solely on organic growth assumptions, including step-up rents, renewals of expiring leases, new leases and growth in turnover rent. Any potential acquisitions, asset enhancement initiatives or redevelopment works could lift the yield even further.

The yield is viewed to be quite attractive versus its key comparables, particularly Link Reit which trades at a one-year forward yield of about 3.6%, according to one syndicate research report. Hong Kong-listed Link Reit owns and operates a large number of retail assets formerly owned by the Hong Kong government and is viewed as a key comp since Festival Walk will account for about 76% of the MGCCT’s total property value and 75% of the rental income.

Li Ka-shing-backed Fortune Reit, which focuses on retail properties in Hong Kong and is listed in both Hong Kong and Singapore, is trading at a one-year forward yield of 5.1%, while Hong Kong-listed Champion Reit, which owns both retail and office properties in Hong Kong, is offering a yield of 5.3%.

CapitaRetail China Trust, which is listed in Singapore, but owns and operates retail properties in mainland China, is trading at a 5.7% yield on a one-year forward basis, according to the report.

MGCCT is the fourth Reit to be sponsored by Singapore developer and property owner Mapletree. It will focus on commercial real estate in Hong Kong and in first and second tier cities in China. In addition to Festival Walk, it will also own the Gateway Plaza office complex in Beijing at the time of listing. The two properties have a combined valuation of S$4.3 billion ($3.5 billion).

The high quality of the assets was a key selling point, as was the Mapletree sponsorship, as investors have done pretty well from the company’s other three Reits. Investors also liked the fact that MGCCT doesn’t have any form of structuring to artificially increase the dividend payout — although the yield is supported by a gearing of about 40%.

Based on the top-end pricing, the cornerstones will invest a combined $716 million in the deal. However, some of them wanted a top-up on their guaranteed allocation and submitted orders through the main institutional book as well, one source said.

The largest among the cornerstones are real estate specialist CBRE Clarion Securities and Norges Bank Investment Management, the manager of Norway’s oil revenues, which will each invest about $99.7 million.

The other cornerstones are: Henderson Global Investors ($85.3 million), Newton Investment Management ($80.7 million), AIA ($69.3 million), Hwang Investment Management ($69.3 million), Morgan Stanley Investment Management ($50 million), Asdew Acquisitions ($40.4 million), Columbia Wanger ($40.4 million), Myriad Asset Management ($40.4 million), and Phileo Capital ($40.4 million).

Citi, DBS, Goldman Sachs and HSBC were joint bookrunners for the IPO. MGCCT is due to start trading on March 7, once the retail offering has also been completed.

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