After a two-and-a-half-week delay, Mapletree Commercial Trust yesterday kicked off the institutional bookbuilding for its Singapore initial public offering. According to the prospectus, the company is looking to raise up to S$923.7 million ($732 million), which is slightly below the S$1.1 billion that was talked about in early March.
The company did a couple of weeks of pre-marketing and was expected to start the formal roadshow on March 21. However, in the wake of the market volatility and uncertainty sparked by the earthquake in Japan, it decided to hold off on the launch. The Singapore stock market hit a 2011 low on March 18, but since then has rebounded 7.8% and is now back at pre-quake levels.
Mapletree Commercial Trust is focusing on a combination of retail and office properties and includes VivoCity, Singapore’s largest shopping mall, which is located right at the entrance to Sentosa Island. It is the fourth Reit sponsored by the Mapletree group after Mapletree Logistics Trust, Mapletree Industrial Trust and Lippo-Mapletree Indonesia Retail Trust .
The new Reit is offering approximately 1.015 billion units, or 54.5% of the total share capital, at a price between S$0.84 and S$0.91. This will allow it to raise between S$852.7 million and S$923.7 million.
Even at the low end of the range, this will be the second largest IPO in Singapore this year after Hutchison Port Holdings Trust, which raised $5.45 billion. Perennial China Retail Trust, a Reit sponsored by Singapore entrepreneur Pua Seck Guan, was in the market with a S$1.1 billion ($862 million) IPO, but that deal was postponed in early March, citing the volatility in the global market.
Mapletree Commercial Trust’s price range translates into a dividend yield of 5.6% to 6.05%, based on the joint bookrunner consensus earnings estimates for the fiscal year ending March 2012 and a commitment to pay out 100% of the taxable income in each of the two fiscal years to March 2013. It will distribute at least 90% after that. Based on the company's own earnings forecast, the yield for fiscal 2012 is slightly lower at about 5.47% to 5.92%.
The yield compares with 5.3% for retail property-focused CapitaMall Trust and 5.2% for office-focused CapitaCommercial Trust. Suntec Reit, which like Mapletree Commercial Trust comprises both retail and office space, is trading at a yield of 5.9%.
Of the total offering, 302.197 million units, or 29.7%, will go to four cornerstone investors. Based on the mid-point of the price range they will invest a combined S$275 million and will hold about 16.2% of the trust at the time of listing. The largest of the four is Asian life insurer AIA, which is buying about S$125 million worth of units. Hillboro Capital, Itochu and NTUC FairPrice are each investing S$50 million.
Some 16.2% of the offering will be reserved for Singapore retail investors, leaving only about 54%, or up to S$500 million, for institutional investors other than the cornerstones.
The Mapletree group, an unlisted property unit of Temasek Holdings, will keep the 45.5% of the trust not sold through the IPO. The company is the largest landlord of office and retail properties in Singapore’s southern corridor, which runs from the central business district along the southwestern coast of the island, and has developed a significant portion of the Harbourfront Precinct, where VivoCity is also located. This part of town has grown significantly in the past few years alongside the development of Genting’s integrated casino resort on Sentosa Island. The Harbourfront developments include the former St James Power Station, which has been transformed into an entertainment hub, and several office properties.
The deal comes with a greenshoe of 101.5 million units, or 14.2% of the offering, excluding the cornerstone tranche. These units will come out of the sponsor’s portion and if fully exercised will see Mapletree’s stake drop to 40%. The shoe may also increase the total IPO proceeds to as much as S$1.01 billion ($800 million).
Aside from VivoCity, which accounts for more than 70% of the portfolio both by income and value, Mapletree Commercial Trust will own two adjacent office buildings at the time of listing — the Bank of America Merrill Lynch Harbourfront and the PSA Building in the adjacent Alexandra Precinct. It will also have a first right of refusal for other projects being developed by Mapletree in the area, including the recently completed Mapletree Business Centre. Its initial portfolio had an average occupancy rate of 98% and was valued at about S$2.8 billion at the end of 2010.
The properties covered by the first right of refusal could almost quadruple the size of the Reit to 6.9 million square feet from 1.8 million sqf at the time of listing.
Visitor arrivals to Sentosa grew by 27.7% to 7.8 million in fiscal 2009/2010 and are expected to reach 17 million to 20 million in fiscal 2010/2011, according to Mapletree Commercial Trust’s prospectus. This increase will continue to benefit VivoCity as the Sentosa Express station is located within the mall.
In addition to that, property valuer DTZ Debenham Tie Leung is forecasting a continued recovery in office rents after the bottoming out in the first quarter of 2010. Rents increased by 8.1% from the fourth quarter of 2009 to the third quarter of 2010 in the area where Mapletree Commercial Trust’s two office buildings are located, but are still 16% below the peak in 2008, hence leaving significant room for further growth.
And, with a gearing of 39% at the time of listing, the Reit will have plenty of room to pursue further growth opportunities. It has obtained a provisional Baa2 rating from Moody’s, which means it is allowed to increase its gearing to as much as 60%.
In a ratings notice, Moody’s said that “based on the experience of Mapletree Logistics Trust (Baa2, positive) and Mapletree Industrial Trust (unrated) ... Mapletree Commercial Trust is likely to be well-supported by Singapore’s banking sector and have good access to fresh equity when required”.
The final price is due to be fixed on April 15 and the trading debut is scheduled for April 27.
The deal is arranged by Citi, DBS, Deutsche Bank, Goldman Sachs and CIMB. Aside from CIMB, all the others are global coordinators after Deutsche Bank was elevated from a joint bookrunner. However, Deutsche’s underwriting commitment is still less than half of what the other three global coordinators are offering.