Reit time for Suntec after all

Singapore Reit prices at top end of IPO range.

A 722 million unit Reit IPO for Suntec City was priced at the top end of its indicative range on Friday (December 3) raising S$722 million ($436 million). Fears that the offering might be overshadowed by the mammoth $2.9 billion Link Reit IPO coming from Hong Kong proved unfounded, with both deals appearing to benefit from increased investor attention on the sector.

Under the lead management of Citigroup, Deutsche Bank and DBS, the IPO for Suntec City was priced at S$1 per unit, representing the top end of a S$0.97 to S$1 price range and a 5.3% premium to the group's NAV of S$0.95 per unit.

The transaction marks the first blended Reit from Singapore and as such was benchmarked against the average yield of CapitaCommercial Trust (CCT), which is a pure office play and CapitaMall (CMT), which is a pure retail play.

CCT was trading on a forward dividend yield of 4.61% on Friday and CMT at 5.71% to give a blended average of 5.16%.

This means that Suntec City offers a 12% premium to the blended average based on its IPO yield of 5.8%. Specialists believe this is about right given that investors tend to prefer single asset plays and that most IPO's are expected to price at a discount of up to 10% to comparables.

The order book is said to have topped the $5.5 billion level, with the placement tranche attracting an oversubscription ratio of 13.7 times and the public offer tranche an oversubscription ratio of 10.6 times. In Singapore, the public offer tranche amounting to 6.9% is sourced from ATM machines.

In total retail investors were allocated 31% of the book. This includes the 6.9% ATM tranche and 23% from the three leads' retail order books plus 2% from other brokers.

Pre greenshoe, Suntec City Reit will have a freefloat of 56%. The offering comprised all new shares and the existing Suntec City owners were diluted on a pro-rata basis. All of the greenshoe, which could bump the freefloat up to 64%, will come out of the sponsors' shares.

Some of the units being issued to the sponsors have also been deferred in order to boost the upfront dividend yield per share. These units will be issued in six monthly installments from three years after the IPO. The date was chosen because this is when two new MRT stations will open, boosting rental yields that should mitigate the 14% dilution of the deferred units.

Specialists also believe the blended nature of the Reit may play to its advantage as it will have wider acquisition opportunities. As one says, "Singapore is not a huge market so there's a limit to the number of single sub-sector Reits that can be listed. Most landmark properties in Singapore also tend to be mixed retail and commercial developments, so Suntec have more flexibility with its acquisition policy."

Suntec City comprises 1.7 million square feet of office space, 990,000 square feet of retail space and a one million square foot convention centre, although this has not been placed into the Reit. It is owned by a consortium of Hong Kong property developers including Li ka-shing, Cheng Yu-tung, Lee Shau-kee and Run Run Shaw.

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