Perennial China Retail Trust (PCRT) has called off its S$1.1 billion ($862 million) initial public offering, citing the volatility in global markets. According to a press release issued by the Perennial group during the weekend, the trust management company and the sponsor intend to bring the Singapore deal back to market as soon as possible after taking into account feedback from investors.
The decision doesn’t seem to have deterred other listing hopefuls. In fact, sources say pre-marketing for another property-related Singapore IPO, Mapletree Commercial Trust, will start today. A real estate investment trust (Reit) that includes one of Singapore’s most popular shopping malls, Mapletree is expected to raise around S$1.1 billion. It will be the fourth Reit sponsored by Mapletree, which is an unlisted property unit of Temasek Holdings and a well-respected developer and landlord in the Lion City. The group also sponsors Mapletree Logistics Trust, Mapletree Industrial Trust and Lippo-Mapletree Indonesia Retail Trust .
PCRT too has a well-known sponsor in the form of Singapore entrepreneur Pua Seck Guan, who has a long history with the CapitaLand group, where he once ran the retail property unit. Pua, who has bought, developed and managed more than 110 retail malls in Asia since 2002 and founded Perennial Real Estate in 2009, is CEO of the PCRT management company, which is 88% owned by Perennial.
The listing vehicle, which is structured as a business trust and focuses on the development and operation of retail malls in China, Hong Kong and Macau, also had the backing of seven high-profile cornerstone investors who had committed to buy $338 million worth of units, or 38.8% of the deal. However, PCRT does differ from most other Singapore business trusts and Reits in that it doesn’t have a large property group or sponsor with a lot of cash behind it. Pua may be well-known, but he and the management company would have owned only about 2% of the trust after the IPO. The rest was to be sold to the cornerstones and to public investors.
A source said this might have made some investors uneasy about the offering and contributed to its postponement. But there were other issues too that made this a somewhat complicated story to understand and value, including the fact that three of the assets in the initial portfolio were still under development — something that was possible since PCRT was to list as a business trust rather than a Reit. Under Singapore regulations, at least 90% of the assets owned by a Reit must be income-producing, while business trusts have much more leeway. This meant that the initial yield offered by PCRT was quite low, at 3.02% this year and 3.08% in 2012, with much of the returns set to come from an increase in net asset value. According to analyst estimates, the NAV per unit should increase from S$0.96 at the time of listing to about S$1.25 to S$1.40 once all the assets are performing.
While that sounds promising, it also brings execution risks and some long-term investors looking for assets in China may have been more tempted by the Singapore IPO of Hutchison Whampoa’s ports assets in Hong Kong, China and Macau, which is also currently in the market. Hutchison Port Holdings Trust, which is also a business trust, is a clearer story as it comprises mature assets that offer a stable income as well as additional growth, assuming throughput increases as expected. The higher implied yield of 5.5% to 6.5% in 2011 has reportedly attracted a lot of interest and the bookrunners told investors after the first day of bookbuilding last Monday that the deal, which is seeking to raise up to $5.8 billion, was already fully covered.
Meanwhile, PCRT also had to contend with the uncertainty about the outlook for Chinese real estate in light of rising interest rates and some concern, especially among non-Asian investors, about the protests in northern Africa and the Middle East.
It didn’t help that the trust was trying to complete its fixed-price offering on an accelerated schedule with the institutional bookbuilding running over just six trading days. The books closed on Friday last week, with the retail offering set to follow this week and the listing scheduled for March 16. According to sources, however, there was quite a bit of price sensitivity among potential investors, which suggests that even with more time, the deal might still have struggled.
Perennial Real Estate said in the release that it had received positive interest and feedback for PCRT during the bookbuilding process. However, “in view of relatively volatile global market conditions, the trustee-manager and the sponsor have decided that it would be in the best interests of investors to defer the proposed IPO”.
Aside from the cornerstone tranche, PCRT offered 660.2 million units, or 59.3% of its total share capital, to international institutions and Singapore retail investors at a fixed price of S$1 per unit. DBS, Goldman Sachs and Standard Chartered were joint bookrunners.
Mapletree Commercial Trust
Mapletree Commercial Trust will not be immune to the global market issues, of course, but being focused on Singapore commercial property, it will at least be far-removed from the troubled Chinese real estate market. Its flagship property will be VivoCity mall, which is the biggest shopping mall in Singapore and located at the entrance to Sentosa Island. This part of Singapore, known as the Harbourfront Precinct, is planned and developed by Mapletree and has grown significantly in the past few years alongside the development of Genting’s integrated casino resort on Sentosa. The Harbourfront developments include the former St James Power Station, which has been transformed into an entertainment hub, and several office properties. Once the extension of the circle line is completed, two subway lines will serve the area.
Aside from the VivoCity mall, Mapletree Commercial Trust will own two adjacent office buildings — the Bank of America Merrill Lynch Harbourfront and the PSA Building — at the time of listing and also has the first right of refusal for other projects being developed by Mapletree in the area. Its initial portfolio is valued at about S$2.8 billion, and it will have a gearing of slightly less than 40%, according to one source.
About 60% of the Reit will be offered to public investors, including cornerstones, while Mapletree will hold on to the remaining 40%.
The pricing will not be disclosed until the launch of the formal roadshow about two weeks from now, but syndicate analysts are estimating a fair value yield of 4.5%-5% for this year. This compares with a yield of about 5% for CapitaCommercial Trust, which focuses on office properties, and 5.5% for CapitaMall Trust, which focuses on shopping malls. Both of these trusts are sponsored by CapitaLand. Suntec Reit, which like Mapletree Commercial Trust operates both office and retail properties, trades at a 2011 yield of about 5.8%.
One observer said Mapletree Commercial Trust is in a good position to achieve the same high-profile status as CapitaMall Trust, which at a total property value of about S$7 billion, is the largest Reit listed in Singapore.
Like PCRT, Mapletree Commercial Trust will be marketed under the Reg-S format, meaning it will not be open to onshore US investors. Citi, DBS and Goldman Sachs are global coordinators, as well as joint bookrunners together with CIMB and Deutsche Bank.