The pricing came as no surprise after the IPO attracted massive demand from institutional investors who jumped at this first opportunity to buy Chinese retail assets through a Reit. The fact that the Reit is sponsored by well-respected Singapore developer CapitaLand was believed to have completely overshadowed any of the usual concerns about investing in China.
According to sources, the deal was more than 100 times covered when the institutional order books closed with virtually ôeverybodyö who tends to invest in real estate having submitting orders û including Reit specialists out of Europe and the US. But the offering also drew a wide variety of other investors such as consumer-focused funds, China funds and hedge funds.
ôThis deal hits the epicentre of the sweet spot as it offers exposure to both real estate and the retail sector,ö says one observer. ôIt is also a great play on consumption and the rapid growth of the Chinese middle class.ö
CapitaRetail is the second Reit in Asia to be backed by Chinese assets after Hong Kong-listed GZI Reit, but GZI is made up of primarily office properties, making this new vehicle a unique opportunity to tap into ChinaÆs shopping mall sector through the Reit concept.
The deal will price at the top of the S$0.95 to S$1.13 range for an initial dividend yield of 5.42% for 2007 and 5.78% for 2008. This is slightly above the average yield offered by the established Singapore Reits, which is currently around 5.1% for 2007 and 5.4% for 2008.
The final price also values the listing vehicle at a 15% premium to its estimated net asset value of S$0.98 per share.
The total offer comprised 193.3 million units, of which 5.6% have been reserved for employees, management and other parties related to the sponsor. A similar portion will be set aside for Singapore retail investors in a public offering that opens today. There is also a greenshoe of up to 14.9% that could boost the total proceeds further if the demand holds up in the secondary market.
A total of 46.7% of the Reit will be sold to institutional and retail investors combined. CapitaLand and CapitaMall will hold an effective 26.3% interest at the time of listing, while the remainder will be held by other strategic investors, including Dutch pension fund PGGM and The Great Eastern Life Assurance.
The Reit has a total asset value of about S$690 million ($440 million) and initially includes seven retail malls located in Beijing, Shanghai and three other Mainland cities.
Adding to CapitaRetail ChinaÆs attractiveness, however, is its well-defined acquisition pipeline, which suggests the potential for capital growth will be significant. The Reit has the right of first refusal to acquire properties held by two private retail funds that are also sponsored by CapitaLand as well as from CapitaLandÆs wholly-owned property arm, CapitaLand Retail.
It also has the right to invest in 14 retail mall developments in China that will be anchored by Wal-Mart hypermarkets, covering approximately 600,000sqm, as well as up to 70% of future Wal-Mart projects in China that will be developed by SZITIC until the end of 2010.
öTogether these acquisition opportunities could result in the asset value of the Reit tripling and operations spreading to 24 cities from the current seven,ö says the observer.
China International Capital Corp, JPMorgan and UBS were joint arrangers for the initial public offering.
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