Soilbuild Reit set to raise $360 million from IPO

The business space trust fixes the price at S$0.78 for a 7.7% yield after attracting good demand from long-only funds and real estate specialists.
Soilbuild trust focuses on industrial properties and business parks
Soilbuild trust focuses on industrial properties and business parks

Soilbuild Business Space Reit will raise S$457.5 million ($360 million) from its Singapore initial public offering after fixing the price at S$0.78 per share, a source said Wednesday.

The trust, which focuses on industrial properties and business parks, is due to start trading on August 16 and will be the third real estate investment trust (Reit) to list in Singapore in less than a month.

According to a source, there was very little price sensitivity in the order book and Soilbuild could quite comfortably have priced at the top, which is perhaps not too surprising as the indicated S$0.77-S$0.80 range was very tight to begin with. However, it chose to leave a couple of cents on the table for investors.

Close to 100 institutional accounts submitted orders and the source said about two-thirds of the deal was allocated to anchor investors, real estate specialists and other long-only funds. Most of that demand came from Asia as the bookrunners chose not to actively market the deal in either Europe or the US.

The issuer launched without cornerstones, but as reported earlier there was enough anchor demand to cover the institutional tranche in full.

The usual hedge funds did participate but, given that the liquidity is expected to be quite thin due to the small market capitalisation, their order sizes were on the small side. The private banking demand was also more muted than that seen on other recent Singapore IPOs, the source said.

Notably, the 40.2% institutional tranche of SPH Reit’s $393 million IPO was approximately 42 times covered with about half of that coming from private banks. The Reit, which listed in late July, is sponsored by Singapore’s dominant media company and owns the popular Paragon Mall on Orchard Road.

Soilbuild’s final price translates into a dividend yield of 7.7% for 2014. Yields in Singapore’s industrial Reit sector widened during the five-day bookbuilding, making Soilbuild relatively less attractive, but in the end it was still able to price at a yield premium to its two closest comparables.

As of the end of trading on Tuesday, Mapletree Industrial Trust was offering a yield of 7.2% for the fiscal year to March 2015 after its unit price fell 1.8% while Soilbuild was in the market, Bloomberg data show. AIMS AMP Capital Industrial Reit was quoted at a yield of 7.6% for the same calendar year after dropping 2.5%.

Reits with a greater focus on industrial properties (which have fewer and less diversified tenants than business parks and tend to trade at higher yields) fell even more during the marketing, and both Cambridge Industrial Trust and Sabana Shari’ah Compliant Reit saw their 2014 yields push above 8%.

Soilbuild’s initial portfolio includes two business parks and five industrial properties, but the business parks make up about 40% of the total value.

It is selling 586.532 million new units, or 73% of the trust, to public investors, while the remaining 27% will be bought by Lim Chap Huat. Lim is a co-founder of the sponsor, Soilbuild Group Holdings, and a director of the Reit management company.

Soilbuild is a well-known brand in Singapore and the sponsor is active throughout the property industry, from construction and development to leasing and fund management.

At launch, 85.1% of the public portion was targeted at institutional investors, but with all of that covered by anchors at launch, the bookrunners decided to cancel the reserve tranche for the management, employees and business associates and reallocate those units to the institutional tranche. As a result, 89.5% of the total offering went to institutional investors.

The remaining 10.5% will be sold to Singapore retail investors in a separate offering that opened on Wednesday and will run until August 14. The retail offering period is slightly longer than usual because of the Singapore holidays on Thursday and Friday this week.

The deal also comes with an overallotment option of 56.307 million secondary units, or 9.6% of the base deal, which could increase the total deal size to about $395 million. The additional units will be provided by Lim and, if the option is exercised in full, his interest in the Reit will fall to 20% from 27% while the free-float will increase to 80%.

The demand for Reits has picked up again after the price correction in May and June as they offer a relatively high and stable yield that can help offset the volatility in share prices elsewhere. Assuming that the pricing isn’t too aggressive, that is.

SPH Reit, which started trading on July 24, was up 10% from the IPO price at the close of trading on Tuesday. That has allowed it to exercise the 10% overallotment option in full, increasing the total deal size to $435 million from $393 million.

OUE Hospitality Trust, which is sponsored by Stephen Riady-controlled United Overseas Enterprises and debuted a day later after raising $470 million, was flat versus the IPO price on Tuesday. Its main asset is the Mandarin Orchard hotel in Singapore, which is located across the street from the Paragon Mall.

Citi, DBS and OCBC were joint bookrunners for Soilbuild’s IPO.

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