I-Reit Global Management, which owns a portfolio of German office buildings, has fixed the offer price for its initial public offering at the bottom end of the pre-marketed range.
The group, which hopes to become the first European real estate investment trust to list in Singapore, has launched a S$372.4 million ($298 million) deal at S$0.88 a share, according to a term sheet seen by FinanceAsia.
The Barclays and DBS-led deal has a sequential offering structure, with the institutional order book now open until July 30. This will be followed by a retail offering from July 30 to August 6, with listing scheduled for August 8.
The IPO has two tranches, with 40% of the deal, or 169.3 million shares, being sold publicly and 60% to a strategic investor, Shanghai Summit Holdings, which is owned by Chinese property tycoon Tong Jianquan.
Shanghai Summit will be subject to an initial six-month lock-up, which covers its entire stake, and a second six-month lock-up covering half of the stake. The group is also taking over 65% of the Reit manager.
The sponsor, Sella Holdings, will not take up any of the IPO, so the deal will account for the company’s entire market capitalisation. It will, however, own 35% of the Reit manager and its CEO, Itzak Sella, is well known in Israel after establishing one of the country’s two listed Reits.
Both the sponsor and strategic investor have committed to offer the Reit first right of refusal over any of their European property assets, although there are none in the immediate pipeline.
Valuation
At S$0.88 per share, I-Reit is being pitched on a dividend yield of 8% based on estimated 2015 earnings. This is a shade outside the pre-marketed range of 7.3% to 7.9%.
The prospective dividend offers a big yield kicker of roughly 680 basis points compared with German Bunds and 568bp relative to Singapore government bonds. Yields on safe-haven euro-zone assets have shifted back towards all-time lows this week amid rising tensions in Ukraine and declining economic sentiment in Germany. Benchmark 10-year German government bonds are currently yielding around 1.18%, not far shy of their mid-2012 low of 1.13%.
However, nagging fears that the global bond market rally is about to come to an end mean Reit issuers need to offer investors a comfortable cushion to get their deals away.
I-Reit is also something of an unknown quantity in Singapore where investors are far more familiar with Asian assets. The nearest local comparables have all been fairly range-bound since I-Reit completed pre-marketing at the beginning of the month.
CapitaCommercial Trust is currently yielding about 4.96% on a forward basis, while much smaller S-Reit OUE Commercial Trust is yielding 6.8%.
In Germany, the nearest benchmarks are office Reits, Alstria and Hamborner, which are trading at respectively 5.2% and 5.4% on a 2015 basis.
I-Reit’s underlying assets consist of four office blocks in Munich, Bonn, Darmstadt and Munster. They have an independent valuation of €284.1 million (S$500 million) and the Reit is set to buy them for €283.1 million, a 0.5% discount.
The deal is partly being sold as a play on Germany’s economic recovery but its asset base is likely to display low turnover since three of the four office blocks are rented out to Deutsche Telekom subsidiary GMG. The overall portfolio has a long weighted average lease to expiry of 7.8 years and is 100% freehold – both big plus points for investors.
Reit deals have shown something of a comeback in Singapore in recent weeks, with investors still hungry for yield in a rock-bottom interest rate environment. Frasers Hospitality Trust secured S$367.9 million from its IPO in late June and is up 2.8% since it began trading on July 14.
Meanwhile, Accordia Golf Trust, a golf course-backed spin-off from Japan’s Accordia Group, aims to raise up to S$782 million from an IPO, which will price on July 24.
