CapitaLand is fast becoming Singapore's most ambitious user of real estate investment trusts (Reits). The property developer is about to list its second Reit, CapitaCommercial Trust, and is preparing for a third, which will involve residential properties - presumably to be called CapitaResidential Trust if the present nomenclature is continued.
CapitaCommercial has also just closed a $340.6 million debt funding exercise prior to its listing. The securitization, which is the biggest ever from a Singaporean originator, involves four loans made to the trust, which are secured by first-ranking mortgages over four office buildings (Capital Tower, Six Battery Road, Robinson Point and StarHub Centre), one mixed-use commercial and retail complex (Bugis Village), and the Market Street and Golden Shoe car parks.
The notes, split into four tranches, are issued through the Silver Loft special purpose vehicle and have a scheduled maturity of five years and a final maturity of six-and-a-half years. The A1 and A2 tranches are both rated AAA and Aaa by Standard & Poor's and Moody's Investors Service and are priced at 45bp over Libor.
The A1 notes raise $90 million and the A2 notes $147 million. The $47 million of A3 notes are rated AA/Aa2 and pay 75bp over Libor while the $56.6 million A4 notes are rated A/A2 and are priced at 130bp over Libor. The Reit itself is due to be launched and listed in April.
There are no exact comaprisons in the market to benchmark against - this is Singapore's first office securitization - but the pricing looks favourable when stacked against CSFB's €635 million La Defense transaction, which priced at 27bp over Euribor at the end of February. The deal is backed by some of the best office space in Paris: two buildings in the eighth arrondissement and six buildings in the La Defense complex, with blue-chip tenants such as France Telecom. CapitaLand's previous property securitization in mid-February, backed by retail assets, priced at the same level on the triple-A notes.
Bankers went out with 50bp price talk but were able to tighten the pricing thanks to solid demand brought about by the dearth of triple-A assets available in the market. "People are really struggling to find decent deals at all now," says one banker.
By selling off its assets CapitaLand, which owns 60% of Raffles Holdings, hopes to free up equity for investments in more profitable markets, primarily China, while at the same time making fees from managing its Reits. However, the developer has not completely sold out of the properties. It is expected to retain a 40% stake in the Reit after listing - property prices are widely thought to have bottomed and CapitaLand will hope to benefit from any upside in the portfolio's valuation.
Although purists quibble over the semantics, the deal is in effect a commercial mortgage-backed securitization (CMBS) in terms of the security that investors hold. Arguably, investors are in an even better position than with a typical CMBS because they acquire security over the Reit's cash accounts as well as the mortgages.
CapitaLand's enthusiasm for Reits apparently knows no bounds. According to local reports the company is also planning to launch a Reit comprising Japanese retail malls: CapitaRetail Japan Fund. With a value between $100 million and $200 million the trust will be listed in either Tokyo or Singapore.
HypoVereinsbank was global lead to the deal and JPMorgan and DBS, which are also arranging the Reit, acted as co-lead managers. The same team is rumoured to be working on the CapitaResidential Reit.
