The decision to pull the initial public offering, which was set to raise up to S$514.9 million ($355 million), was made after the books closed and was said to have been prompted by management concerns about a weak aftermarket. According to sources, the deal was fully covered within the price range and could have gone ahead.
This was confirmed in a statement issued by APL Japan Trust Management on Friday which said the deal had generated ôgood investor feedback and healthy demand that more than covered the booksö.
However, it went on to note that: ôThe markets are currently unfavourable and even though the fundamentals of our transaction are sound, there is a risk of post-listing price weakness as a result of negative market sentiment. Weakness in APL Japan TrustÆs unit price post listing would raise its cost of capital and make growth by acquisitions more challenging.ö
And that would not be in the best interests of the unit holders, it argued. According to the statement, the deal will be postponed until next year when the management plans to return with ôa bigger and stronger proposition.ö
ôWe believe we will then be better positioned to reward investors with improved total returns,ö says David Tan, chief executive officer of the Reit manager.
As the cost of capital increases, it will essentially be much harder for the trust to find yield accretive acquisition objects and given that acquisitions were to account for a significant part of the growth that the management was flagging during the roadshow, the decision does seem to make sense.
ôGiven the possible unit price weakness post listing as a result of current macro issues, APL Group could not be fully confident of achieving our projections for growth through acquisitions, therefore it is possible that total returns would not be commensurate with APLÆs past performance,ö APL Group President William Schoenfeld said in a written statement. He noted that the group has in the past generated exceptional returns, suggesting that it wouldnÆt be willing to sacrifice that reputation and track-record.
However, one can argue that if the units are placed with high-quality long-term investors, the short-term volatility in the market shouldnÆt really matter as they wouldnÆt be selling anyway.
Pulling an IPO after having completed the roadshow isnÆt exactly a good public relations exercise, but the managementÆs decision was somewhat vindicated when SingaporeÆs only other Japan Reit started to trade in the afternoon session Friday. Having completed a $134 million IPO of its own earlier this month through Credit Suisse and Morgan Stanley, Saizen Reit fell 14% from its S$1.00 offering price to S$0.86, underperforming the wider market by far û the Singapore Straits Index declined by 2%.
Investors who had submitted orders for APL were likely to have breathed a sigh of relief that they didnÆt have to experience a similar drop. However, the fact that APL was pulled would likely have contributed to the negative sentiment and resulted in more aggressive selling of residential property-focused Saizen. Having completed its listing, Saizen now has the opportunity to trade up with the market once the current nervousness abates and it will also be able to seek additional equity funding to expand its portfolio û although the trust has indicated that it is more likely to fund its initial acquisition through debt.
Arranged by joint bookrunners JPMorgan and Lehman Brothers, APL was offering 411.92 million units at a price between S$1.05 and S$1.25. An unusually large portion of the trust (95.1%) was to be sold into the public float, leaving the sponsor holding less than 5%.
Based on the estimated cash distribution for the coming two year, the price range translated into a yield of 4.3% to 5.2% in 2008, increasing to 4.6% to 5.5% in 2009. At the top end of the price range, APL Trust was valued at a 9% premium to the net asset value and at the bottom end at a discount of about 8%. This compares with a weighted average premium of 51.6% for all the S-Reits, although the range varies widely with about a quarter of the Reits trading at a discount to NAV.
At the time of listing, the Reit was to have owned nine retail and office properties across Japan with a total appraised value of S$839 million ($579 million).
The sponsor, APL Group International (Holdings), is part of JapanÆs Asia-Pacific Land group, which specialises in the origination, development and management of real estate assets throughout Japan and in other parts of the region.
¬ Haymarket Media Limited. All rights reserved.
