Mapletree harvests strong demand for Reit

Heavy oversubscription for new Singapore Reit IPO.

Mapletree Logistics Trust (MLT) has become the sixth Reit to list in Singapore following the completion of a 310.87 million unit IPO on Friday (July 22). The Temasek-owned group raised S$211.39 million ($127.4 million) via DBS and UBS.

The deal was priced at S$0.68 per unit, the top end of an S$0.63 to S$0.68 range. There is also a greenshoe of 15%.

The institutional book is said to have closed 60 times covered and the retail book 30 times covered despite an order cap of S$20 million per investor. Institutions were allocated S$200 million, high net worth investors S$60 million and retail S$50 million.

A total of 400 accounts are said to have placed orders for the deal, although the final allocation was pared back to roughly 200. Specialists say this is because MLT wanted to build a solid institutional base of long-term holders that will stick with the company when it makes fresh capital raising trips to fund future acquisitions.

By geography about 65% of the book went to Asia, 20% to Europe and 15% to the US.

Post greenshoe, Mapletree Investments will own 30% of the company, with 65% in freefloat and the remaining 5% held by a group of five investors that had sold MLT assets in the run up to its listing. Mapletree Investments is wholly owned by Singapore government investment arm Temasek.

At S$0.68 per unit, the company has been valued at a premium of 20% to NAV. This marks the second time a Singapore Reit has been able to IPO at a premium to net asset value. In December 2004, Suntec City priced an S$722 million IPO at a premium of 5.3% to NAV.

However, with the exception of Fortune Reit, all the Singaporean Reits now trade at high premiums to NAV. For example, Suntec City has appreciated to approximately 11% premium, while CCT, CMT and A-Reit are trading in the 43% to 80% range (subject to individual analysts' valuations).

At the same time, the Singapore Reit sector has witnessed severe yield contraction over the past two years thanks to falling bond yields and growing investor familiarity with the asset class, which has resulted in strong buying interest. MLT has been priced at a premium to the sector and will yield 6% on a 2005 basis and 6.2% on a 2006 basis.

By contrast, Suntec and Fortune were both trading in a 5.1% to 5.3% band, while CCT, CMT and A-Reit were trading in a 3.8% to 4.3% band.

The main reason why MLT needed to come at premium is that it operates in the logistics space, where tenancies tend to be long-term and occupancy rates high. This makes it hard for management companies to work the existing asset base, although the flip side is that capex requirements are also low.

Where MLT is concerned, the company's weighted average occupancy rate was 95.2% as of May 2005 and its weighted average lease term to expiry was 9.1 years.

Increasing the dividend per unit is therefore likely to depend on acquisitions. Here the company should benefit from the asset base of its parent. At listing MLT will have a portfolio of 15 Singapore properties valued at S$422 million and covering a lettable area of 792,885 square metres.

However, its parent has a portfolio of a further 12 logistics related properties valued at S$255 million. The majority of these assets are located outside Singapore in Malaysia and Hong Kong.

Investors response to Mapletree's Reit shows that there is still plenty of enthusiasm for the sector despite the strong share price appreciation it has witnessed over the past couple of years. This should also play well for Prime Reit, which hopes to raise up to S$500 million and has begun marketing an IPO via DBS, JPMorgan and Macquarie.

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