Singapore-listed Ascendas Real Estate Investment Trust (A-Reit) has raised S$298.5 million ($241 million) from a follow-on share placement that will be used to fund a variety of projects, including asset enhancements and the acquisition of a business property in Shanghai.
The deal, which was completed yesterday, is the first equity fundraising in the Singapore Reit sector this year. Last week, M&L Hospitality Trusts, which was set to own six hotels in Singapore, Australia and Japan at the time of listing, called off an initial public offering of up to $369 million due to disappointing demand.
The A-Reit placement too wasn’t the kind of blow-out deal that the company has become used to in the past, perhaps because the deal wasn’t directly linked to a yield-accretive acquisition, perhaps because the general market conditions were a bit soft or because the shares were offered at a pretty tight discount. But the trust, which owns a portfolio of 101 industrial properties, including business and science parks, warehouses and logistics centres, is viewed as a “blue-chip” Reit with a top-quality management and a loyal shareholder base and that gave the deal the momentum it needed.
A large number of existing unitholders came in to support the transaction, but some investors who are currently not on the shareholders’ register also submitted orders, including some specialist real estate funds in Hong Kong and Singapore, sources said.
To help potential buyers become comfortable with the fundraising and to provide an update on its strategy, the A-Reit management held a couple of conference calls with investors in Asia and London during the bookbuilding. The deal launched at about 7.30am yesterday, but didn’t really come together until the early afternoon. In the end though, the bookrunners were able to amass a high-quality order book of 65 investors and sources said it was about 1.5 times covered.
The demand was highly price sensitive though and the price was fixed at the bottom of the indicated range. Citi and J.P. Morgan were joint bookrunners for the transaction.
A-Reit offered 150 million new units at a price between S$1.99 and S$2.04, which translated into a discount of 2.4% to 4.8% versus Wednesday’s closing price of S$2.09. However, adjusted for an upcoming dividend distribution of 1.69 Singapore cents that the buyers of the placement won’t be able to participate in, the discount was an even tighter 1.6% to 4%.
The final price of S$1.99 represented an adjusted discount of 4% to the latest close, but a premium of 6% to the net asset value per unit, based on the NAV at the end of the fiscal year to March 2012, A-Reit’s management company said in a statement to the Singapore Exchange.
According to a source, the final price also translated into a forward yield of about 7%.
The deal attracted primarily long-only investors, including a few insurance companies. There was also some interest from Singapore-based private banks. As usual when it comes to yield plays and other low-volatility instruments, hedge funds were less keen and one source estimated that they accounted for less than 20% of the demand.
Given that the order books closed at 5.30pm Hong Kong time, most of the demand came from Asia, Australia and Europe, although the bookrunners were able to reach some US investors on the west coast immediately after the launch yesterday morning.
Since the fundraising wasn’t linked to a specific acquisition, investors essentially had to make a call on whether they believe the various projects that the management intends to spend the money on will help improve earnings and lead to higher dividends down the road. According to a source, most of the projects won’t start to generate revenues until 2013.
In a statement issue yesterday morning, the A-Reit management company said the placement will give A-Reit greater financial capacity to capitalise on potential growth opportunities and will allow it to act more quickly when pursuing acquisitions of income-producing properties. The issue of new units should also help boost the liquidity in the counter, it said. As a result of the fundraising and after deploying the funds on the various projects, A-Reit’s leverage is expected to drop to 34.6% from 36.6%, leaving it with a bit more capacity to fund future projects by taking on additional debt.
Moody’s said in a note that the fundraising will support A-Reit’s current ratings. “The placement will improve A-Reit’s total borrowings/value of deposited properties to 32.1% from 36.6% as of 31 March 2012, pending the deployment of the gross proceeds for their intended use”, senior credit officer Alan Greene said. “As on-going projects are financed and completed through the year, debt to total assets is expected to increase again gradually to approximately 35%, which remains in line with its current A3 corporate family rating.”
In addition to the family rating, A-Reit has a senior unsecured debt rating of Baa1 (stable outlook) from Moody’s.
A-Reit said it will use approximately S$57 million of the net proceeds for asset enhancements at two existing properties; S$100.3 million for the construction of a new business park development and a built-to-suit facility; S$90 million to pay of the acquisition of a business space property in Shanghai; and S$46.5 million for general corporate purposes and working capital.
A-Reit was suspended from trading yesterday, but the stock has been on a rising trend since the beginning of this year, gaining 14.2%.
