CapitaLand has completed a securitization backed by mortgages on three suburban shopping malls in Singapore. The offer, made through the CapitaRetail Singapore special purpose vehicle, was split into two highly rated euro-denominated tranches and two lower rated Singapore dollar tranches, making it the first credit-tranched commercial mortgage-backed securitization (CMBS) to be offered in Singapore.
The top tranche comprised €67.5 million ($86 million) of floating-rate notes, was rated triple-A by all three rating agencies - Moodys, Standard & Poor's and Fitch - and pays 45bp over six-month Euribor. The second euro tranche was made up of €13.5 million floating-rate notes, was rated Aa2, AA, AA and pays 79bp over six-month Euribor. Both these tranches were arranged by BNP Paribas and listed in Luxembourg. The proceeds will be swapped back into Singapore dollars by BNP Paribas.
The first Singapore tranche offered S$33 million ($20 million) of fixed-rate notes, was rated A2, A, A and pays a coupon of 3.18%. Last, an S$83 million unrated subordinated tranche pays out 6.37%. Both tranches were arranged by OCBC and are listed in Singapore. The notes have an expected maturity of four years and a legal maturity of 5.5 years.
European investors' appetite for highly rated asset-backed paper is particularly strong at the moment, according to a banker involved on the deal, and the offer was structured to tap into this. Bankers visited investors - mainly banks, funds and insurance companies - in Frankfurt, Paris, London and Dublin during a 10-day roadshow and encountered little resistance to the top tranches' punchy pricing.
The CapitaMall Trust (CMT) triple-A CMBS last year priced at 60bp, though it was slightly longer-dated at seven years. "It's a very good deal," says one banker. "The pricing is pretty chipper because right now there's a big bid for triple-A assets from investors in Europe and America."
But CapitaLand isn't just a diversification play for European investors looking for highly rated assets in other parts of the world. The developer has become increasingly familiar to European investors and its track record as an originator lends it a good deal of credibility despite the poor conditions that have prevailed in the Singapore property market for the past few years.
Its CMT real estate investment trust (Reit), for instance, has been a raging success, out-performing even its own expectations and injecting new life into the developer's balance sheet. With the resulting lower yield that the Reit has to pay out, CapitaLand now has greater muscle to go out and buy new properties to add into CMT's portfolio.
The three shopping malls backing the CapitaRetail offer - Rivervale Mall, Lot One Shoppers Mall and Bukit Panjang Plaza - are just such acquisitions. CapitaLand will use the proceeds from the offer to revamp the malls over the next few years, raising them up to the standard of the existing malls included in the Reit. The properties are valued at S$489 million and the bonds raised 60% of that valuation. At the moment they are considered lower-end assets; further out of town, with smaller catchment areas and drab interiors. But revamping the malls should allow CapitaLand to sell them into the CMT Reit within three or four years.
Buoyed by the success of its first Reit, CapitaLand is now planning to launch Singapore's first office Reit, CapitaCommercial Trust. JPMorgan and DBS are co-leads on the S$2 billion deal and HVB is also rumoured to be involved in structuring a debt portion. Allen & Gledhill is advising CapitaLand on legal issues relating to the deal.
